Across the credit union system, auto loan growth has flattened in recent years. Consumer preferences, economic conditions, competition, and technology have been shifting since long before the start of the COVID-19 pandemic. Even under normal conditions, these changes are nothing to ignore, especially when vehicle financing through auto loans makes up a significant portion of credit unions’ loan portfolios. But what does a flattened market and a shifting environment added on top of a life-changing pandemic mean for credit unions when it comes to their auto lending business?
While I can’t predict the future, as much as I wish I could (hello, lottery tickets!), I can tell you from my years of experience working in credit union, auto lending and technology fields, what the trends I’m seeing are pointing toward, what Filene’s research on auto loan trends and challenges are projecting for the impact to the industry, and what you should be planning to do about it.
First, this goes without saying, but I want to be very clear: a solid understanding of current auto trends has never been more important. In addition to auto loans making up a significant portion of credit unions’ loan portfolios, a robust auto loan portfolio offers an asset that allows your credit union to be responsive to the interest rate market without the long-term risk inherent in the mortgage space.
The strange case of 2020
The average auto loan stays on the books for just under 39 months ensuring the ability to constantly refresh these assets with new ones at current market rates. We are coming off two of the strongest auto sales months in recent history (April & May 2021), and new car sales are trending close to 2019—or pre-pandemic—levels (16.7M vs 17.0M). 
A major indicator of overall economic health as you may know, is new car sales. In 2020, this dropped to 14.7 million sales vs 17.0 million in 2019. Overall auto sales were down 14.6% in 2020 because of COVID. This compares to only a 9.9% drop in retail sales. 
Due to factory closings during the pandemic, inventory levels are extremely low. New cars are down 59% from 2019 levels while used inventories are down a more modest 14%.  These tight inventories are driving up retail prices in both segments. Credit unions need to be responsive to loan requests that may exceed existing loan policy guidelines in the near term.
A new competitive landscape in 2021
To date in 2021, we are seeing a drop off in zero percent offerings from the manufacturers (down to 6.7% of new financed vehicles from a high of 21% at the end of 2020). 
This makes for a more competitive landscape in which credit unions have the chance to thrive in the auto lending game once again. Expect to see this trend continue until manufacturers rebuild new inventory levels.
This supports one of the key trends and patterns that surfaced in Filene’s recent report Auto Loans and Credit Unions: Trends, Challenges, and Projections (filene.org/531), indicating that credit union auto loan growth will slowly return to the long-term average of 6% (4% adjusted for inflation). 
Despite the short-term disruption of COVID-19, we expect auto loans to remain a significant component of credit union loan portfolios over the medium term and for the foreseeable future. Credit unions should use these implications and trends to prepare for a future where auto loans and related services truly advance member well-being, improve members’ transportation options, attract new members, and form lasting, meaningful member relationships—all while diversifying loan portfolios.
By Chris Harper, Senior Director, Membership | Filene Research Institute
This article is provided as part MnCUN's partnership with CUNA Mutual Group. For more information, contact John Ferstl, Chief Operations Officer for the Network Services Corporation and TruLync
 J.D Power and LMC Automotive U.S. Automotive Forecast May 2021.  NADA, “NADA Issues Analysis of 2020 Auto Sales, 2021 Sales Forecast”, January 12, 2021. [3, 4] Cox Automotive, “Cox Automotive Auto Market Report: June 8”, June 8, 2021.  Filene Research Institute, “Auto Loans and Credit Unions: Trends, Challenges, and Projections”, January 26, 2021.  Cox Automotive, “Sales of Electrified Vehicles Jump 81% in the First Quarter of 2021”, April 19, 2021.  Experian, “U.S. Auto Debt Grows to Record High Despite Pandemic”, April 12, 2021.  McD MotorCycles Data, “United States 2021. Motorcycles market posted a spectacular Q1 (+33%)”, May 11, 2021
CUNA Mutual Group is the marketing name for CUNA Mutual Holding Company, a mutual insurance holding company, its subsidiaries, and affiliates. Corporate headquarters are located at 5910 Mineral Point Road, Madison WI 53705.
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