Article

Loan Zone: The Impact of COVID-19 on Auto Lending

red toy car sits on white computer keyboard
By Mark Chandler

4 minutes

For credit unions participating in indirect lending, the pandemic has been a mixed bag of lessons and opportunities.

It seems like it was only yesterday that we were preparing to wrap up the first quarter of another promising year. Car sales were steady. Leasing was strong. Employment and lending? Robust—and that’s an understatement!

Three months later, we’re wrapping up the second quarter with no idea what will happen next. The only sure bet is uncertainty. While there is no doubt that COVID-19 has changed the world, when it comes to automotive indirect lending, the impact of the pandemic has also left some interesting lessons for credit unions.

Lesson No. 1: Auto Financing Is Resilient and Recovering Fast

During April, automakers were doing everything to move metal: 0% APR for 84 months, thousands of dollars in cash, and all of it intended to give the market a jolt. It’s not hard to remember how difficult those weeks were in the automotive space. While some states weren’t impacted much (Texas), other states were completely shut down (Michigan, New Jersey). In the shut-down states, while credit unions stayed (barely) open, dealerships were only allowed to keep their service departments open.

Those days are mostly gone. According to the National Automobile Dealers Association, May sales had a seasonally adjusted annual rate of 12.21 million units, a decline of almost 30% compared to May 2019. However, April saw a 47.9% decrease, so things are on the upswing. In May, at CULA, we saw leases double in the hardest-hit states, and June continued to show a strong rebound. Such a resilient recovery is a sign of strength in the market, and in leasing specifically. To add to that, today we’re seeing a resurgent used car market, and a nice rebound in vehicle values.

The pandemic did not reduce consumers’ need for vehicles but rather underscored it: Social distancing recommendations spurred a move away from ride-sharing and public transportation and increased the importance of personal vehicles, a trend that is not likely to change for some time.

Lesson No. 2: Socially-Distant Selling Brings Digital Transformation for All

Looking for a silver lining to COVID-19? Here’s one: It changed our willingness to sit inside a dealership cubicle for three hours and haggle over a car deal. The pandemic pushed car sales into the online age and drove many dealers to pivot to digital retailing as a viable solution for survival. For example, according to Group 1, one of the largest auto retailers in the nation, online-generated sales tripled in May compared to pre-COVID-19 usage.

Will this same transformation happen in credit unions?  Indeed it must. According to a report by CNN, the overall banking industry is unprepared for digital transformation: 43% of banking systems are built on COBOL—a relic of a computer language developed in 1959. Simply put, the state of technology in financial services is old and out of touch.

Credit unions can take inspiration from the auto sector in terms of its digital shift. What was once a high-contact process at dealerships is now becoming more efficient and creating long-lasting benefits in terms of profitability and customer satisfaction. CUs can reap similar benefits if they shift to a strategy that includes employee training, upgrading legacy systems and rethinking member interactions. Consumers are already there: A recent survey by Kasasa and BAI found that 79% of consumers felt that a complete digital experience was important when selecting a financial institution.

Lesson No. 3: Regaining Momentum Starts With Communication

The point of digital transformation is to make mundane tasks less tedious and time consuming. This allows your team to put their energy into providing a more personal touch. During the dark days of April, our team at CULA stayed in touch with credit unions and dealers to provide support and be a knowledgeable resource about prices and deals. We were able to guide clients and partners to the best opportunities when things began to open up. Digital transformation can help CUs much the same thing for members with less overhead: According to a study by PTC, executives say that among the top benefits of digital transformation are improved operational efficiency (40%), and the ability to meet customer expectations (35%).

Change is, ultimately, a good thing—even when it comes courtesy of a pandemic. Today, the changes made permanent by the pandemic are shifts toward stability and efficiency. Just as digital transformation is the right change at the right time for dealers and car shoppers, so too is it for credit unions—especially with vehicle leasing becoming a flexible and powerful option for expanding your portfolio.

Mark Chandler is VP/Business Development of Credit Union Leasing of America, San Diego, the leader in indirect vehicle leasing for credit unions, offering a solution that helps credit unions increase yield, diversify their portfolios, capture additional business from current members and increase membership. Mark is an automobile finance expert with 30-plus years of experience serving credit unions and their members, assisting them with their car-buying needs. Before joining CULA, he was an executive coach and consultant in finance technology and spent nearly 20 years at Autoland, then the nation’s largest credit union car buying service, concluding his tenure as company president.

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