the hidden risks of the auto lending boom - cuna€¦ · the hidden risks of the auto lending boom...

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1

The Hidden Risks of the

Auto Lending Boom

June 30, 2018

22

The Hidden

Risks of the Auto

Lending Boom

CUNA Mutual Group Proprietary | Reproduction, Adaptation or Distribution Prohibited | CUNA Mutual Group © 2018, All Rights Reserved.

June 30, 2018

Share of Wallet Research Series

2

33

Section 1

What Are The Hidden Risks Of

The Auto Lending Boom?

Section 2

What Do We Know About These

Risks?

Section 3

How Can Be Done To Counter

These Risks?

Agenda

44

What Are the Hidden

Risks of the Auto

Lending Boom?

1

3

5Source: CNNMoney, New York Times, Reuters and USA Today

Auto Sales Have Been on a Tear in Recent Years

6

0

200

400

600

800

1000

1200

2012 2013 2014 2015 2016 2017

$ B

illio

ns

U.S. Total Outstanding Auto Loan Balances

$800B

$886B

$1,129B

$719B

$987B

$1,072B

Source: Experian’s State of the Automotive Finance Market – Q4 2017

Auto Loan Balances Are at a Record High

2012-2017 CAGR:

9.4%

4

7

0

200

400

600

800

1000

1200

2012 2013 2014 2015 2016 2017

$ B

illi

on

s

U.S. Total Outstanding Auto Loan Balances

$800B

$886B

$1,129B

2012-2017 CAGR

Finance Co.: 14.5%

Credit Union: 14.8%

Captive Auto: 4.3%

All Banks: 7.5%

$987B

$1,072B

$719B

Credit Union Loan Growth Is Among the Fastest

Source: Experian’s State of the Automotive Finance Market – Q4 2017

8

Forecast

0

50

100

150

200

250

300

$ B

illio

ns

Total CU Outstanding Auto Loan Growth: 2012-2017

Source: CUNA Mutual Group – Economics; Experian

Indirect Channel Is Driving Credit Union Auto Lending Growth

CU Indirect Loans

CAGR:

20.1%

CU Direct Loans CAGR:

8.7%

CU Total Auto Loans

CAGR:

14.8%

5

9

0%

10%

20%

30%

40%

50%

60%

70%

CU Indirect Share of Total Auto Loans Outstanding

Forecast

Indirect Share of Credit Union Auto Lending

Continues to Increase

2012: 43%

2017: 56%

2021: 61%*Forecasted growth

*

Source: CUNA Mutual Group – Economics

10

Share of Wallet

Research Uncovers

Hidden Risks

6

1111

Defining Share of Wallet

It's a marketing metric that

represents the percentage of a

customer's total spending within

a category, captured by a specific

brand, store or business.

1212

Have credit unions grown

their share of members’

auto lending wallets

since Q4 2015?

7

13

CUs Grew Overall

Number of Auto Loans

With Members by

Source: CUNA Mutual Group Proprietary Consumer Research: Competiscan

22%

CUs Grew Number of

Non-PFI Member Loans by

7%

44%

CUs Grew Number of

PFI Member Loans by

From Q4 2015 to Q4 2017…

14

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Q4 2015 Q4 2017

Au

to L

oa

ns

pe

r 1

0,0

00

Me

mb

ers

Credit Unions Banks Other Lenders

From Oct. 2015 to Oct. 2017, CUs Grew Share of

Member Auto Lending Wallets 4%

42%

31%

27%

38%

34%

28%

Credit Union Share of Wallet Among Members

Is on The Rise

+4 p.p.

Source: CUNA Mutual Group Proprietary Consumer Research; Competiscan

8

15

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Q4 2015 Q4 2017

Au

to L

oa

ns P

er

10

,00

0 C

U P

FI M

em

be

rs


41%

28%

31%

38%

31%

31%

While CU PFI member

wallet size grew,

Overall CU PFI Member Auto Loans

Credit Union Share of Wallet: A Complex Story

PFI member SOW

decreased by

3percentage points


-3 p.p.

16

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Q4 2015 Q4 2017

Au

to L

oa

ns P

er

10

,00

0 C

U N

on

-PF

I M

em

be

rs


35%

41%

23%

48%

31%

21%

Overall CU Non-PFI Member Auto Loans


As CU non-PFI member

wallet size grew,

Non-PFI member

SOW increased by

13percentage points

+13 p.p.


9

1717

CU PFI SOW

3 p.p.

CU NON-PFI SOW

13 p.p.

from Q4 2015 to Q4 2017

To recap:

Total CU member SOW: +4 p.p., however:



18

On average,

a consumer’s PFI wins

64%of all their purchases.

Source: Bain 2016

Share of Wallet

Among PFI

Members

Should Be

Stronger

10

19

of CU PFI members intend

to give their CU most or all

of their future business.Source: Raddon 2015

Share of Wallet

Among PFI

Members

Should Be

Stronger

And a booming

88%

2020

Hidden Risk: Share of Wallet

Among PFI Members is

Lagging Behind

Non-PFI Growth. Why?

11

2121

Introducing the

Silent Churn Dilemma

The Silent Churn principle demonstrates

that while many PFI members maintain

existing accounts, they’re purchasing

additional banking products elsewhere.

Source: JavelinStrategy.com

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Q4 2015 Q4 2017

Au

to L

oan

s P

er

10,0

00 C

U P

FI

Mem

bers


31%

41%

28%

31%

38%

31%

31%

Overall CU PFI Member Auto Loans


+3 p.p.

2222

What Do We Know

About These Risks?2

12

2323

Price & Brand: Key Drivers of Auto Lender Choice

Top Reasons BANK Was Chosen

as New Auto Lender

Low interest rate and fees 15%

Reputable, trustworthy company 11%

Ease of application 11%

Likelihood of getting approved 10%

Simple, straightforward product 10%

Original Auto Loan – Top Selection Factors

Top Reasons CU Was Chosen

as New Auto Lender

Low interest rate and fees 21%

Simple, straightforward product 11%

Likelihood of getting approved 9%

Easy payment methods 8%

Reputable, trustworthy company 7%


2424

Credit Unions Have Banks

Beat on Rates

Credit Union Advantage: Lower Interest Rates

*National average rate

Source: “Comparison of Average Savings, Deposits, and Loan Rates of Credit Unions (CUs) and Banks”, NCUA, 12/29/17

All Credit Unions* 2.87% 2.91% 2.79%

All Banks* 5.11% 4.75% 4.64%

Used Car Loan(36 months)

New Car Loan(60 months)

New Car Loan(48 months)

13

2525

Strong Dealer Ties: Traditional Driver of Banks’ Success

Top Reasons to Use a

Credit Union

1. Provider offered lowest

(fixed) rate on the loan

2. I had an existing financial

relationship with provider aside

from the the loan in question

3. Easy application process

Top Reasons to Use a

Bank

1. Provider was associated

with the car dealership

2. Provider offered lowest

(fixed) rate on the loan

3. Provider was recommended

by the car dealership

Source: “New Car Loans: Linking Member Satisfaction to Loan Decisions: A Wallet Allocation Rule Approach”,

Lerzan Aksoy, Professor of Marketing, Fordham University / Filene Research Institute, 2015

2626

CUs Have Chipped Away at Banks’ Advantage with

Dealership Relationships

Lender

March 2017

# of Loans Originated

YTD (annualized rate)Rank

CAPITAL ONE AUTO FINANCE 1,060,724 1

LARGE INDIRECT LENDING CUSO 1,055,112 2

ALLY 981,896 3

WELLS FARGO DEALER SERVICES 842,020 4

TOYOTA FINANCIAL SERVICES 738,884 5

CHASE AUTO FINANCE 697,476 6

AMERICAN HONDA FINANCE 504,560 7

FORD MOTOR CREDIT 481,296 8

BANK OF AMERICA 453,324 9

NISSAN INFINITI FINANCIAL SVCS 432,928 10

*Full list of rankings not publicly available

Source: F&I and Showroom, CUNA Lending Council / CU Direct, Automotive News

14

2727

Who sends the most

auto lending offers

to your members?

28

Conventional Wisdom: Credit Unions Reign Supreme

“My Credit Union” received the most #1 rankings.

“National Banks” came in second.

Other types of lenders* trailed by a wide margin.

*For example: Local/regional banks or other credit unions

Source: CUNA Mutual Group Proprietary Credit Union Research

15

29

0% 5% 10% 15% 20% 25% 30% 35%

Online Lenders

Credit Unions

Banks

Other Lenders

Mfr Financing

Auto Loan Offers Received by Members

In Reality, Credit Union Offers Lag The Competition

Auto Acquisition Marketing Targeting CU Members by Lender Type

*Direct mail & email offers

Source: Competiscan

Credit unions are being

out-marketed

3:1vs. non-CU lenders in

terms of auto loan offers*

targeting CU members

3030

Hidden Risk: Credit

Unions Are Being Out-

Marketed

16

3131

How Can Be Done To

Counter These Risks?3

32

Four Keys to Greater Share of Wallet

1) Measure & Track Share of Wallet

2) Optimize Your Member Experience

3) Defend Your Share of Wallet

4) Grow Your Share of Wallet

17

33

Measure & Track

Share of Wallet

3434

To Grow, We Must First Measure

“You can’t manage what

you don’t measure.”

Peter Drucker,

Founder of Modern Management

18

3535

Share of Wallet Is Measured in Two Ways:

Example #1:

Product Count BasisA sugar-crazed consumer

purchases six Cokes and four

Sierra Mists over the course

of a month.

Each soda’s respective SOW is:

Coke – 60%

Sierra Mist – 40%

Example #2:

Dollar BasisA dual-wielding credit card spender

charges $1,000 to their American

Express card and $500 to their credit

union’s card over the course of a month.

Each credit card’s respective SOW is:

American Express – 67%

Credit Union – 33%

Source: “Marketing Metrics: Understanding Market Share and Related Metrics”, Glen Berg, 3/22/2017

3636

The Main Challenge of

Calculating Share of Wallet

To calculate SOW,

you must know how

much business

members are doing

with other lenders.

Source: R. Y. Du (University of Georgia), W. A. Kamakura (Duke University), and C. F. Mela (Duke University)

19

37

Gathering Data: Third-Party Firms Can Help

Source: AdvantEdge Analytics

Data Management Services

Advanced and Predictive Analytics

Reporting and Performance Management

38

Optimize Your

Member Experience

20

3939

Consumer Pain Points

When Purchasing a Vehicle

Digital Channels

Have Not Been

Fully Integrated

Into the Process

Fear of Getting

a Bad Deal

on Car and

Financing

Takes Too

Long and Is

Frustrating

Lack of

Personalization

Lack of

Guidance,

Expertise

and Control

4040

Preparing for a Digital-First Future

As more members migrate toward digital channels,

successful credit unions will:

• Prioritize the user experience (UX)

• Deliver a streamlined, efficient end-to-end lending process

• Offer all the channels members require at each stage of the loan application

• Provide credit union employees with digital tools to help them better meet

member expectations

• Continue investing in new ways to provide convenience to their members

21

41

2.7 3.23.8

4.4

0

1

2

3

4

5

Digitallyunengaged

Less digitallyengaged

Digitallyengaged

Highly digitallyengaged

Average Number of Products Consumers HoldWith Their Primary Financial Institution To boost digital

engagement,

consider:

• Evaluating and

improving digital UX

• Improving digital

on-boarding

• Responding more

rapidly to technological

innovation

Source: “Global Retail Banking Cross-Sell Report”, The RFI Group, 2015

High Digital Engagement Can Lead to Higher Share of Wallet

42

Defend Your

Share of Wallet

22

43

Valuable Tactics for Member Retention

Engage New Members Right Away

Utilize Predictive Analytics to Identify At-Risk Members

Monitor Members’ Hard Credit Inquiries

Target Members With Relevant Offers and Communications

44

Grow Your

Share of Wallet

23

45

Optimize Your Direct Marketing

Communications

with 25%+ open

rates featured lower

rates, relevant

offers or a better

experience in the

email subject lines.

Lender Subject Line Open %

USAA Bank is driving

down auto loan rates52%

Mary, Interested In a

Lower Car Payment?41%

Congratulations

on your PenFed loan

pre-approval!35%

Introducing a new car

buying experience at

chase.com29%

Get a check the day

you’re approved with a

USAA Bank auto loan29%

Source: Competiscan

4646

Members Demand More Relevant Offers

66%of engaged account holders indicate

they’re not satisfied with offers they

receive from their financial partners.

Why?Because they’re not relevant.

Triggers–or signals–can help

you tailor loan offerings to

a customer’s needs.

Trigger examples available through third-party

suppliers include:

- A member’s rising income or improving credit score

- A mortgage rate increase

- Paying off debt

- Major life events–marriage, home purchase, etc.

24

47

Credit Unions Get Ahead With Auto Loan Recapture

15%

36%32%

6%

11%

Bank PFI AutoLoan Recapture

11%

54%

27%

3%5%

Credit Union PFI Auto Loan Recapture

Captives Credit Unions Banks Online Lenders Other

For both bank and credit

union PFI members,

credit unions captured

the largest share of

refinanced auto loans.


48

Maximize Your Auto Loan Recapture Program

Use Bill Pay and Credit Bureau Data in Predictive Models

to Identify Refinance Candidates Among Members

Focus Messaging on Monthly Payments, Not Rates

Use Multiple Channels to Reach Prequalified Members

and Provide Several Easy Response Options

Offer Incentives to Encourage Actual Applications

25

49Source: CUNA Mutual Proprietary Research; Experian’s State of Automotive Finance – Q4 2017

Credit Union Share of Wallet Opportunity

Auto Loans Outstanding Held by Credit Union Members

Outstanding Auto

Loans With CUs

$313B

Outstanding

Loans With All

Other Lenders

$432B

5050

Will Credit Unions Seize

The ‘Share of Wallet”

Opportunity?

26

51

Q A&

5252

CUNA Mutual Group Proprietary | Reproduction, Adaptation or Distribution Prohibited | CUNA Mutual Group © 2018, All Rights Reserved.

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The Hidden Risks of the

Auto Lending Boom

June 30, 2018

the hidden risks of the auto lending boom - cuna€¦ · the hidden risks of the auto lending boom...

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