Credit unions eye pre-owned market to boost auto lending in 2024

Credit unions are poised to make an auto lending comeback in the second half of 2024, especially in the preowned market.

Big picture: Manufacturer-operated financing arms, also known as captive lenders, now own a majority (roughly 52% in Q1) of the new car segment after losing ground to competitors during the pandemic. Comparatively, credit unions only accounted for about 10%. There are a few reasons for this shift.

• Vehicle production has surged in 2024, increasing the amount of inventory that automakers and dealers need to move. New car inventory stood at roughly 2.79 million units this August, up about 35% from last year.

• As a result, incentives, like subvented rates, have gone up significantly, improving overall affordability.

• In July, manufacturer discounts accounted for roughly 7% of the average new car transaction price, the highest it’s gotten in 2024.

Zooming in: At the same time, while automakers are dominating their side of the market, certain trends, like stubborn interest rates, are starting to drive people away from new vehicles.

• Although overall affordability is improving, progress has been agonizingly slow. The average new vehicle listing price was $47,307 at the beginning of this month, down 0.3% from last year.

• Furthermore, monthly payments are still uncomfortably high, especially for new car owners. In July, the average loan payment was $753, down just 5% from the peak in late 2022.

• An increasing number of consumers are underwater in their current auto loans. Roughly 24% of new car buyers who financed their purchase in Q2 with trade-in had negative equity, the most since early 2021.

Driving the news: These trends are creating golden opportunities for competing financing institutions, like credit unions, in the used vehicle market.

• In fact, we’re already seeing more competitiveness from them on the preowned side.

• Credit unions were already the most popular financing choice for used car buyers in 2023 for the first time In years, owning almost one-third of the market.

• This year, they’re neck and neck with banks for preowned market share, according to Experian. Bob Child, COO of Origence, said he expects that to change in the coming months:

Bottom line: Used car demand has been subject to constant fluctuation for the last few years. With consumers facing so many challenges on the new vehicle side, it makes sense for the pendulum to swing back the other way. But even as credit unions take advantage of that shift, it remains to be seen whether this will put a further strain on pre-owned supply. While used car affordability has been improving, shortages could cause pricing to surge once more.

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