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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
Credit Unions Banks Other Lenders
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
Source: CUNA Mutual Group Proprietary Consumer Research; Competiscan
-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
Credit Unions Banks Other Lenders
35%
41%
23%
48%
31%
21%
Overall CU Non-PFI Member Auto Loans
Credit Union Share of Wallet: A Complex Story
As CU non-PFI member
wallet size grew,
Non-PFI member
SOW increased by
13percentage points
+13 p.p.
Source: CUNA Mutual Group Proprietary Consumer Research; Competiscan
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:
Credit Union Share of Wallet: A Complex Story
Source: CUNA Mutual Group Proprietary Consumer Research; Competiscan
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
Credit Unions Banks Other Lenders
31%
41%
28%
31%
38%
31%
31%
Overall CU PFI Member Auto Loans
Source: CUNA Mutual Group Proprietary Consumer Research; Competiscan
+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%
Source: CUNA Mutual Group Proprietary Consumer Research; Competiscan
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.
Source: CUNA Mutual Group Proprietary Consumer Research; Competiscan
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.
cunamutual.com
27
53
The Hidden Risks of the
Auto Lending Boom
June 30, 2018