Auto Loan Refis and Used Cars Still Show Promise in 2020
The economy was off to a great start at the beginning of the year, and auto lending has long been credit union’s bread and butter. While auto lending did experience a dip early in the year following the recognition of the coronavirus’ all-encompassing impact, credit unions less so.
“We're really encouraged to see how quickly everyone has jumped back in with both feet,” Open Lending Vice President Channel Partnerships Julie Nielsen said during Ser Tech’s first LIVE session last month. “I think some of that is due to both activity in the refinance as well as purchase channels. Our priorities in operating under the current economic environment as well as political environment is to support our lenders that are getting back out there and making loans to consumers.”
Open Lending, a Ser Tech strategic partner that provides alternative credit scoring and default insurance for auto loans, has adjusted some of its underwriting and recommends credit unions be smart about that, too. “We want to make sure that credit unions are making loans that are appropriate for each borrower and adjusting debt-to-income levels that make sense, and that it's not too heavy of a load,” Nielsen said. While auto loan defaults have remained low, some of that could be due to government assistance programs in response to the coronavirus.
Overall volumes will remain slow. According to Statista, U.S. car sales could range between 14.5 and 16.4 million units in 2020, and where it actually lands will depend upon the continued impact of the coronavirus. As some states began opening up businesses and events in mid-2020, cases spiked leading to backing down from lifting stay-at-home orders.
In 2019, sales had slowed slightly from the previous few years already, and many people – particularly those with strong credit – are unlikely to replace their newer vehicles anytime soon. Statista reported that the average price of a new light vehicle was about $36,400, which is more than half of the median U.S. household income, and 86% financed them. Such a large investment is unlikely during an economic slowdown.
But people are going stir crazy right now. They want to go shopping and eat in restaurants, and they don’t want to take mass transit or ride share options in the era of the coronavirus. Tourism and work commutes are way down and unlikely to return anytime soon for companies like Uber and Lyft.
Contactless car sales got a boost this year amid the coronavirus pandemic, as dealerships and lenders worked to continue serving customers and borrowers. Dealerships eCommerce capabilities got ramped up to speed. Credit unions worked on eSignatures and digital funding.
“I think contactless car shopping and finance has a place,” Nielsen commented, “but there's a tangible element of shopping for a vehicle, comparing it to something else, sitting in it, literally trying it on for size. That is still an important element in the consumer process.” Purchase finance numbers through Open Lending’s program went up dramatically as states and dealerships were ready to reopen, so consumers do still look for a hands-on environment.
The pandemic, however, may have also pushed more car buyers to banks. According to Automotive News, banks gained market share while credit unions’ declined from 19.9% in the first quarter of 2019 to 19.5% in the first quarter of 2020, even before COVID hit the U.S. Last year was the first year for auto loan market decline since 2011. The analysis suggested the steep drop in rates leveled the playing field, making for-profit lenders more competitive.
Credit unions can lean on their industry partners to help them right the auto lending market share decline, according to Ser Tech CEO Shana Richardson. Partners like Open Lending, CU Direct and Ser Tech are constantly investing in their technology platforms to help credit unions reach more consumers the way they want to be reached, whether it’s in the dealership, mobile or online.
“I'll give you an example of a new CU Direct partnership we have created: They are running our evergreen pre-screen through the CUDL platform. That allows their 1,100 credit unions and 14,000 dealerships, when a member is applying for a loan to get instantly approved and secure funding through their credit union quickly. That wasn't happening in the past, so there's a real opportunity there.”
“Ser Tech has certainly seen an increase in pre-screen loan marketing campaigns,” Richardson added. “Credit unions are actively pre-approving members for both new acquisition and refinance loans. They're waiving application fees. They're expediting the loan process so that members are getting funding quickly. And it's truly times like these, when I think the value of credit unions shine through and other lenders can't compete like we do with relationships.”