A wise consumer investment portfolio adviser will counsel clients to diversify their investments. Why? Because if you put all your eggs in one basket and the basket breaks, all is ruined. The smart thing to do is to put your eggs in several baskets, thus spreading your risk across several areas.

The same principle applies to your credit union's loan portfolio. In my last column, I covered some long-term lending strategies you can implement to help your credit union weather the occasional lending doldrums (CU Mag 8/01, p. 32). Auto lending is presently in one of those doldrums.

Auto lending growth is expected to stay in the 6% to 7% range for the rest of this year. Sluggish consumer demand for new cars, low manufacturer financing, rebates, and an abundance of mortgage refinancings are all contributing to a slowdown in auto lending.

The overall condition of the economy has trickled down to the auto industry, creating a downturn in new-car sales. As of July, vehicle sales were down more than 9% compared with last year. The average transaction price for new models is $25,485.

But that isn't the entire picture. Used-car sales are expected to fuel most of this year's auto-loan growth. Credit union used-car loans increased 8.9% for the first half of 2000, vs. 1.9% for new-- auto loans, according to CUNA Mutual Economist David Colby. In 2000, the auto industry sold 17.4 million new cars and 40 million used ones. This year, used-car sales are expected to bump up to almost 43 million.

If you haven't done so already, focus on usedcar loans. After all, used-car loans and new-car loans each represent about 20% of credit union loan portfolios, according to CUNA's economics and statistics department. Here are some tips for marketing used-car loans:

Examine your used-car loan rates. If a member is looking at a $15,000 used car at a 9.5% interest rate, that member can get a new car with 0.9% financing from a dealer and the monthly payments will be comparable.

Should there be a big difference in rates between your used- and new-car offerings? Traditionally, credit union loan underwriters have assumed that used-car buyers were more of a credit risk than new-car buyers. But I don't think there's much of a difference between the credit profiles of new- and used-car buyers.

* Streamline your internal steps to make usedcar lending as easy as possible.

* If you do indirect lending, remember that from the dealer's standpoint, there's not the tie-in there is with new cars. With new cars, Detroit wants to move metal. With used cars, you need to find ways to encourage dealers to make sales. There frequently are bigger margins with used cars.

* If your credit union has a marketing customer information file system, use it to target your usedcar loan purchasers. Use special promotions, special sales, and offer special rates on used cars, and market them in your credit union's newsletter.

* If you haven't done so already, now would be a good time to establish relationships with used-- auto dealers.

On the new-car side, you'll continue to be assaulted by increased incentives. Car manufacturers have increased incentives to an average $2,200 per vehicle this year, according to Art Spinella, general manager of CNW Marketing/ Research in Bandon, Ore. That's up from about $1,500 last year. This will pull some people out of the used-car market.

In a tight economy like ours, you need to fish for ways to increase your lending volume. No matter what the new-car market does, the used-car market is worth pursuing. It's another way to strengthen your lending operation through diversification.

BILL KLEWIN is vice president and staff director for CUNA Mutual Group's Lending Lab.

Contact Bill Klewin at 608-231-7009 or

Copyright Credit Union National Association, Inc. Oct 2001
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