CFOs Nudged to Partner with Credit Unions

Now is the time auto dealerships’ chief financial officers may want to partner with credit unions for consumer financing.

TransUnion has released an analysis showing the number of consumers with credit cards and personal loans has reached record highs, due in large part to loans to non-prime consumers. That means that as inflation soars and the economy continues to signal worrisome recession indicators, auto shoppers will look for lower interest rates, Satyan Merchant, senior vice president and automotive business leader at TransUnion, tells Wards.

“Supply-chain challenges continue to impact the auto finance market, with affordability eroding for many consumers,” he says. “There’s a clear trend in rising monthly payments for both new and used vehicles, which have also been driven higher by the Federal Reserve’s recent rate hikes.

“Increased costs to consumers may be seen as an opportunity for some lenders with credit unions gaining market share, possibly because they are often able to offer lower interest rates to auto loan borrowers.”

Financial challenges aren’t unique to automotive shoppers and aren’t as grim as they may seem to casual observers. Employment opportunities are high, jobless rates remain low and lenders continue offering more access to credit, including for non-prime customers new to credit, he says.

CFOs will want to note that serious auto loan delinquencies, which TransUnion defines as 60-plus days past due, increased 40 basis points between Q2 2021 and Q2 2022, but performance differs for recent vintage loans. One example shared by TransUnion is that loans originated in Q2 and Q3 2020 continue to outperform pre-pandemic vintages. Loans from Q2 and Q3 2021 are beginning to perform on par with them. Originations in Q1 2021 declined 8.3% from the previous year, though they remained above Q1 2019 levels.

The cost of financing vehicles remains high due to many factors, including overall demand, inflation and rising interest rates. Plus, TransUnion reports used vehicles “propel the debt metric,” with average used-vehicle monthly payments rising 22% on a year-over-year basis to $505 in Q1 2022.

“The good news continues to be (that) there is demand” for automobiles, he says. “And we don't think there's much weakening in the demand. While this hasn't necessarily proven out directly in the numbers, I think that the auto industry generally is impacted by employment. Although there are recession fears out there, unemployment is extremely low. So, I think as long as employment stays strong there will be the demand for vehicles.”