Presented By Tony Boutelle, President & CEO National Auto Lending Market Trends Michigan Auto...

Presented ByTony Boutelle, President & CEO

National Auto Lending Market Trends

Michigan Auto Lending Trends

CFPB Update

Gen Y’s Influence

Results of National Auto Research

MCUL Executive Summit

Auto Lending Industry Trends

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2012 A u g

2013 A u g

16.7 16.8 17.0 16.5 16.2 13.3 10.4 11.6 12.8 14.59.7 10.6

43.6 42.7 44.1 42.6 41.6

36.535.5 36.9

38.840.5

27.9 28.8

New Used

59.5 61.159.1 57.8

49.845.9

51.655.0

in M

illio

ns 37.6 39.4

48.5

U.S. New & Used Auto Sales 2003 – 2013 YTD

Source: CNW Research

New Car Sales Experiencing Monthly Levels Not Seen Since 2006

57.8M

60.3

+9.5%

+3.4%

+5.0%

Source: Callahan & Associates’ Peer to Peer Software. Based on loans outstanding

Total loan portfolio increased 5% over Q1 ‘12

Auto loans rose 9% over Q1 ’12 and increased to over 30% of the loan portfolio

Auto loans represent $189B; a 10% gain over Q2 ‘12 Total loan portfolio increased 5% over Q2 ‘12

Auto Loans Comprising Nearly a Third of Credit Union Portfolios

41.5%

30.2%

11.6%6.4%

1.5% 4.4%

0.4% 3.8%First Mortgages

Auto Loans

Other Real Estate

Unsecured Credit Card

Non-RE MBL

Other Unsecured

Student Loans

Other Loans

Credit Union Total Loan PortfolioLoan Composition as of June 30, 2013

Total Portfolio Value: $621B

Source: Callahan & Associates’ Peer to Peer Software Based on all U.S. credit union’s loans outstanding

Aging Vehicles on the Road Helping Demand for New Cars

Year Vehicle Made

Autos 10 years or older

Aging autos bolstering car sales

National Market Share

CUs

Banks

Cap-tives

Finance CoOther*

National Market ShareAs of July 31, 2013

Total Auto Loans: 11.2M

CUs Banks Captives Finance Co Other

17.39%

39.01%

17.84%13.25% 12.50%

Source: AutoCount, an Experian Company. Does not include private party transactions.

*Other – Buy Here/Pay Here and Finance Companies less than 100 loans per month.

Credit union’s continue to hold a 17% market share despite aggressive competition

Auto Loan Market Share by Lender TypeJuly 2013 YTD

Does not include leases.Source: AutoCount, an Experian company

2007 2008 2009 2010 2011 2012 July '13 YTD

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

17% 18% 22% 18% 17% 18% 17%

25% 25% 22%21% 20% 17% 18%

33% 30% 30% 36% 36% 41% 39%

25% 26% 26% 26% 27% 24% 26%

Credit Unions Captives Banks Finance Co's

Q2 2012 Q2 20130.0%

20.0%

40.0%

60.0%

80.0%

100.0%

2.5% 2.9%8.9% 9.7%

13.1% 13.7%

75.6% 73.7%

Deep Subprime Sub Prime Non Prime Prime

Risk Distribution of New Loans

Series10.0%

10.0%

20.0%20.1%

14.0%

9.7%

3.3%

Deep Subprime Sub Prime Non PrimePrime

YOY ChangeSource: Experian Automotive

YOY Change of New Loans

Lenders are Taking on Slightly More Risk for New Car Sales to Augment Loan Growth

Q2 2012 Q2 20130.0%

20.0%

40.0%

60.0%

80.0%

100.0%

21.5% 21.3%

18.9% 19.5%

16.3% 16.6%

43.2% 42.6%

Deep Subprime Sub Prime Non Prime Prime

Risk Distribution of Used Loans

Series10.0%

10.0%

20.0%

3.5%

7.8% 6.8%

3.3%

Deep Subprime Sub Prime Non PrimePrime

YOY ChangeSource: Experian Automotive

YOY Change of Used Loans

Risk levels for Used Car Sales Remains Stable

Loans are retail sales of franchised and independent dealerships. Fleet sales are not included. Data includes the 46 states for which lienholder information is available. Credit union loans shown are through the CUDL Program.

Source: AutoCount, an Experian Company

2013Rank

2012Rank Auto Lender Loans YTD

Growth

1 2 Wells Fargo Dealer Services 650,515 -4.1%

2 1 Ally Bank 579,328 -27.4%

3 3 Chase Auto Finance 541,128 -3.6%

4 4 Toyota Financial Services 495,155 -8.5%

5 8 Credit Unions 415,968 16.8%

6 5 Capital One Auto Finance 409,489 -18.0%

7 7 American Honda Finance 379,274 -11.0%

8 6 Ford Motor Credit 363,852 -14.6%

9 12 Bank of America 266,676 26.9%

10 11 Nissan Infiniti Financial Services 252,054 12.6%

Top US Auto Lender Rankings through July 2013

Nationally CUDL Credit Unions Rank as a Top 5 Market Lender


2Q '08

2Q '09

2Q '10

2Q '11

2Q '12

2Q ' 13

0.00%

0.50%

1.00%

1.50%

2.00%

1.23%

1.80%

1.34%

0.90%

0.65% 0.57%

1.08%1.39%

1.11%

0.88%0.67% 0.63%

Indirect Charge-Offs Indirect Delinquencies

Source: Callahan & Associates’ Peer to Peer Software

Credit Union Indirect Delinquencies & Charge-offs Stay LowIndirect Charge-offs of 0.57% at Lowest Level in Years

Based on dollar amount


Credit Union Indirect Delinquencies and Charge-offsData as of June 30, 2013 for

All U.S. Credit Unions

Source: Experian Automotive’s State of the Automotive Finance Market Q2 2013

Total automotive delinquencies based on units

CU Automotive Delinquencies are Lowest in the Market

Credit Unions Captives Banks Finance/Other Total0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

0.28%0.37%

0.54%

1.53%

0.58%

0.27%

0.41%0.49%

1.54%

0.58%

60 Day Delinquency by Lender Type

Q2 2012 Q2 2013

-4.6%+11.1%

-9.1%

+0.7%

-0.7%

Source: CUDL System

Used avg = 66 mos (v 64 YA)new avg = 75 (v 73 YA)

Auto Loan Durations Continuing to Extend Longer, with New Trend Towards 8 Year Policies

??96 mos

New = 142,483Used = 301,051

Michigan Market Competitors and their Advantages

Michigan Auto Loans Have Increased by 4%Over the Same Period One Year Ago

+4.7 pts

+0.8 pts

Loans are retail sales of franchised and independent dealerships and does not include fleet sales or leases.

2013Rank

2012Rank Auto Lender Loans YOY

Growth

1 1 Ally Bank 25,489 -27%

2 2 Chase Auto Finance 19,637 11%

3 3 Ford Motor Credit 15,255 -5%

4 5 Credit Acceptance Corp 11,954 -1%

5 4 Huntington National Bank 11,480 -17%

6 6 Fifth Third Bank 10,126 8%

7 8 Wells Fargo Dealer Services 8,951 7%

8 7 Capital One Auto Finance 8,209 -7%

9 unranked BMO Harris Bank NA 6,568 41%

10 9 PNC Bank 6,561 -18%

11 21 CU One 6,352 137%

Top Auto Lenders – Michigan – January through July 2013


Top 10 Lenders By Credit Risk Mix – New Vehicle Loans

+4.7 pts

+0.8 pts

FORD MOTOR CREDIT

ALLY CHASE AUTO FINANCE

FIFTH THIRD BANK

BMO HARRIS BANK NA

AMERICAN HONDA FINANCE

HUNTINGTON NATIONAL

BANK

PNC BANK CAPITAL ONE AUTO FI-NANCE

TOYOTA FI-NANCIAL SERVICES

0%

25%

50%

75%

100%

6.6%12.4%

4.2% 1.6% 2.8% 2.4%10.3%

4.9%

11.2%

18.2%

10.2%6.9% 3.4%

7.1% 8.4% 6.3%

8.4%9.2%

80.8%66.8%

85.0%91.4% 96.2%

89.5% 88.8% 92.7%78.3%

85.0%

Deep Subprime Subprime Non-Prime Prime

Credit Tier for Top Michigan Lenders January – July 2013

Source: AutoCount, an Experian CompanyNote: Credit score based on ScorexPLUSPrime 680+, Non-prime 620-679, Subprime 550-619, Deep subprime <550

Top 10 Lenders By Credit Risk Mix – Used Vehicle Loans

+4.7 pts

+0.8 pts

ALLY CREDIT ACCEP-TANCE CORP

CHASE AUTO FINANCE

HUNTINGTON NATIONAL

BANK

WELLS FARGO DEALER SER-

VICES

FIFTH THIRD BANK

CU ONE LAKE MICHIGAN

CU

CAPITAL ONE AUTO FI-NANCE

SANTANDER CONSUMER

FINANCE

0%

25%

50%

75%

100%

4%

46%

5% 11% 13%

44%21%

43%

15%

6%

27%

8%4% 4%

35%

43%

26%

8%

16%

19%

24%

15%16% 11%

16%

9%

49%

1%

64%74%

39%

76% 80% 85%

36%

4%

Deep Subprime Subprime Non-Prime Prime

Credit Tier for Top Michigan Lenders January – July 2013

Source: AutoCount, an Experian CompanyNote: Credit score based on ScorexPLUSPrime 680+, Non-prime 620-679, Subprime 550-619, Deep subprime <550

Michigan Credit Union Auto Loans Have Increased by 17%Over the Same Period One Year Ago

+4.7 pts

+0.8 pts

Loans are retail sales of franchised and independent dealerships and does not include fleet sales or leases.

2013 CURank

2013 MIRank Auto Lender Loans YOY

Growth

1 18 CU One 6,352 137%

2 20 Michigan Schools & Government CU 5,256 332%

3 22 Lake Michigan CU 4,646 3%

4 26 Michigan State University FCU 4,260 15%

5 27 Lake Trust CU 4,167 43%

6 28 Genisys CU 3,061 40%

7 29 CP FCU 2,979 225%

8 34 LAFCU 2,027 -1%

9 36 Consumer CU 1,834 -3%

10 39 Community Financial FCU 1,635 11%

Top Credit Union Auto Lenders – Michigan – January through July 2013


Michigan Credit Unions are Exceeding National Market Share

CUs

Banks

Captives

Finance Co Other*

Michigan Market ShareAs of July 31, 2013

Total Auto Loans: 294K

40.05%

30.51%

11.20%11.70% 6.53%

Source: AutoCount, an Experian Company. Does not include private party transactions.

*Other – Buy Here/Pay Here and Finance Companies less than 100 loans per month.

Credit Unions are Acquiring an Ever Increasing Number of Michigan’s Auto Loans

Michigan Auto Loan Market Share by Lender TypeJuly 2013 YTD

Does not include leases.Source: AutoCount, an Experian company

2007 2008 2009 2010 2011 2012 July '13 YTD

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

24% 27% 33%25% 25% 28% 31%

24%30% 25%

24%13% 12% 11%

30%

28% 30%37%

47% 45% 40%

22%14% 11% 13% 16% 16% 18%

Credit Unions Captives Banks Finance Co's

CFPB Update and Potential Impacts

Dealer Mark-up• Indirect auto lenders allow the dealer to charge the consumer an interest rate

that is costlier than the lender rate. The increased rate, called “Dealer Markup,” is then given back to the dealer

CFPB Concern• Dealers with this type of discretion increase the risk of pricing disparities

based on race, national origin, etc.• Note: FTC reviewed dealer mark-ups in 2011 and did not find irregularities

CFPB Threatening to Hold Auto Lenders Accountable for Discriminatory Credit Interest Rate Mark-up

CFPB Proposed Guidelines - June 2013• Lenders should have comprehensive fair lending compliance programs for

rate participation contracts‒ Includes monitoring all dealer activities and impact on loan portfolio for

disparate actions• Or, Lenders can simply pay dealers on a fixed fee basis

CFPB Threatening to Hold Auto Lenders Accountable for Discriminatory Credit Interest Rate Mark-up

• Today dealers earning $400- $1,500 per loan on mark-up

• Slow to change− Won’t give up revenue without a fight

• There has been a slow movement to super-flats

• Dealers could raise other fees to make up

• Possible scenario: DOJ drills down on lender to sue the dealer who originated discrimination

Possible Exposure Yes, but Unlikely to End Rate Participation

• Most credit unions use flats now – may level the playing field

• May require burdensome due diligence requirements on lenders using rate mark ups

• Possible scenario: CFPB or DOJ sues lender enters into a credit discrimination consent decree

Dealer ImpactCredit Union Impact

Gen Y Influence on Auto Lending

Gen Y Now Influences More Than Half of All Auto Loans

In their 20s – 30s

61% of Gen Y have directly influenced their parents’ automotive purchasing decision

69% of Gen Y say they will purchase a used vehicle in the next 24 months

Source: 2012 Census, Deloitte Automotive Generation Y Survey

21% Gen Y

40% Gen Y

21% of US Population 40% of Auto Purchases

Gen Y Grew Up Differently and that Shapes Buying and Financing Behavior

Gen Y known for being both self-seeking and empowered

With Gen Y there are no winners or losers

Whatever decision they make is their decision – they made it and it is OK

Gen Y is our first technologically advanced generation

Source: 2012 Deloitte Automotive Generation Y Survey

Gen Y See Financing Differently

• 60% would prefer not to go into an auto dealership and would rather shop online.

• 82% say they don’t want to enter the F&I office. Desire pre-approval and completing documentation in advance.

• 53% say a bad experience with a lender would cause them to not consider the lender ever again.

• 57% want to avoid face-to-face contact in the lending process. Would rather research and apply online. If rates not easily found, they will move on.

Source: 2012 Deloitte Automotive Generation Y Survey

National Auto Loan ResearchMarch-May: 2013

National Online Survey

Member & NonMemberFocus Groups

– 6 Credit Unions/5 Markets:• San Mateo — SF Bay Area, CA • Golden 1 — Sacramento, CA• GTE Financial — Tampa, FL • Citadel — Chester County, PA • America First — Salt Lake City, UT• Mountain America — Salt Lake City, UT

– Age – 23-39; HHI - $30/$50-$150k – Borrowed within 12 months

– 48 States represented; Age – 23-45– Borrowed within 24 months– New or Used Vehicle Loans

Consumer Beliefs: True or False

Car Dealers will always find you the best loan rate and payment.

Auto loan refinancing costs a lot and you need to make 6 months of payments to be eligible.

Credit unions may have better rates, but you have to have perfect credit, or you have to be in the club to qualify.

A car loan … is a car loan … is a car loan. Just get the best deal!

Borrowing for the car is just the last part of buying the car. It’s part of the same event.

Where Do Age 23-45 Search for Cars?

NEW vehicles:• Dealer sites• Manufacturer websites• Edmunds.com• KBB.com• ConsumerReports.org• AutoTrader.com• Google• Cars.com

Online (About 75%)

12% usage or higher; Descending usage order top to bottom.

Not Online (About 25%)

USED vehicles:• Dealer sites• AutoTrader.com• Cars.com• Carfax.com• KBB.com• CarMax.com• Edmunds.com• Craigslist• ConsumerReports.org• Google

Source: National Auto Resource – Goldman Consulting & Strategy

Pre-Approvals: Did Buyers Seek Them?

Yes, during the search process, but before I knew the car I wanted.

Yes, after the search process, just before it was time to buy the specific car I wanted.

Yes, before starting to search.

Yes, during the search process, but after I knew generally the car I wanted.

No.

4.7%

4.7%

6.8%

9.5%

74.3%

5.0%

7.7%

8.0%

7.7%

71.6%

NEW USED

> 7 in 10: “NO” …But > 25%: “YES”


Did Pre-Approved Consumers Finance with Pre-Approval Provider?

Yes71%

No29%

USED

Yes80%

No20%

NEW


- “I was so busy trying to find my car, I didn’t even think about the loan.”

- “I should spend more time looking at lending next time.”

- “You don’t really get excited over a banking transaction.”

Build Dealer Relationships

The Power of the Dealer– Emotions are about the car, not the financing. – Financing done at dealer.– Expectations of best rate at dealer. – CONSUMERS DON’T DISTINGUISH BUYING FROM

BORROWING.

Impact?– Lost pre-approvals to dealer-provided rate.– Lost loan due to “not being open” when buying.

Payment & Rates Rule!

• Nonmembers sought the best payment/rate.

• Members sought the best payment/rate.– Despite STRONG relationships, Members still only

basis points away from financing elsewhere.– De-commoditizing the loan:

• Unless you create a compelling value-add beyond price (payment and rate), then you are a commodity and low price will always win.

• What is your relevant distinction?

Incentive/re

wards

Skip-a-payment option

Pre-approval

Dealer reco

mmendation

Lender/P

FI relationsh

ip

Convenience

Loan te

rms

Loan ra

te

Payment Amount

5% 7%12% 14%

18%

34%

46%

69%73%

17%

9%

16%

9%14%

35%

51%

72% 71%

USED

NEW

What Was “Very Important” to Consumers in Choosing Their Lender?


1 2 3 4 or more

57.1%

21.4%

11.6% 10.7%

65.7%

22.7%

9.1%

3.3%

USEDNEW

How Many Loan Provider Options Did the Dealer Present to the Consumer?*

*Among Consumers who financed at the dealership.

Most Consumers see 1 Offer at the Dealer!


How Often Did Consumers with an Intended Lender Finance Elsewhere When that Lender was Closed?

USED

NEW

25.0%

12.2%

25%!


Technology

• Computer preferred for search• Smartphones?

– Vast Majority own Smartphones– Roughly half used Smartphone to

shop for a car– Empowering when on the go.

• Payment Calculator• Financing Information: rates,

pre-approvals• Trade-in Value• Verify sales consultant claims

Conclusions and Take Aways

Opportunities for Action:

1. Auto buying + Auto loan = 1 Event

– Get in front of the loan

– Get members pre-approved

– Car Sales/Invest in America

2. Mobile: Offer sales/financing tools

3. Consider external shopping hours

4. Build relationships with dealers

Car sales in 2014 expected to reach pre-recession 2006 high levels

Source: New Car Sales – Automotive News; Used Car Sales – CNW Research

New Car Sales Used Car Sales

2006 2007 2008 2009 2010 2011 2012 2013e 2014e8.0

10.0

12.0

14.0

16.0

18.0

16.516.2

13.2

10.4

11.6

12.8

14.5

15.8

16.4

(units in millions)

2006 2007 2008 2009 2010 2011 2012 2013e 2014e25.0

27.0

29.0

31.0

33.0

35.0

37.0

39.0

41.0

43.0

45.0

42.641.6

36.535.5

36.9

38.8

40.5

42.042.6

(units in millions)

2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

3%

-2%

-12%

-3%

4%5%

4% 4%

1% 1%

0%

-4% -2%

-18%

-22%

11% 10% 13%

9%

4%3%

2%

Used New

The Planning Horizon 2014 – 2016 will see the Return of Lower More Normalized SAAR Growth Rates

Source: CNW Research

New Cars

Used Cars

Forecast

Annual Growth Rate in U.S. Vehicle Sales

Auto Loan Application Approval Rates

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-130%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%96.5%

89.4%

13.19%

750+ Prime 620-749 Near-Prime 619- Sub-Prime

Source: CNW Marketing Research.

While Large Demand Exists in Sub Prime Lenders Still Remain Reluctant to Return to 2007 Approval Levels

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 20205,000

5,500

6,000

6,500

7,000

7,500

8,000 7,9707,860

7,706

7,491

7,2507,166

6,818

6,613

6,415

6,223

6,036

5,855

5,679

5,509

By 2020, there could be fewer

than 5,000 credit unions

2009 20130

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

40% 33%

19%

19%

23%

26%

13%

16%

6%

5%7,706

6,818

<$10M

$10-$24M

$25-$99M

$100-$499M

$500M+# of credit

unions under $10M decreasing

steadily

US Credit Unions by Asset Size, June 2013

During 2013 Saw the Largest Decline in Credit Unions as Mergers Increased Shifting Activity to Larger Credit Unions


2013 Figures as of: June 2013

Presented By Tony Boutelle, President & CEO National Auto Lending Market Trends Michigan Auto...

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