Will the Credit Union Bonanza End?

Credit unions have handily captured volume in recent months while banks and captives cut back auto lending operations. Ypsilanti, Mich.-based Community Driven Credit Union, for instance, has originated $10.5 million of auto loans this year, up from its norm of $3 million. And Peoria, Ill.-based Citizens Equity First Credit Union accounted for 22% of the auto loans in a 15-county area in central Illinois — more than the next five lenders combined. Multiply those figures by 8,000 credit unions nationwide, and the numbers start to add up.

Put simply, credit unions gradually gained marketshare primarily because they had money to lend at a time when others didn’t. According to third-quarter data from Experian Automotive, auto loan outstandings at credit unions grew 3.4% from 3Q08, while they fell 22.7% and 5.4% at finance companies and captives, respectively. Bank volume remained steady, with a 0.4% increase.

The tide is changing, though, as capital is slowly restored to banks and captives. What remains to be seen is whether the credit union relationships that have strengthened in the past 12 to 18 months will hold tight. Will consumers who financed purchases with their credit unions a year ago turn to the same institutions the next time they need loans, or will those customers once again be lured by the low rates offered by other financiers? Will the credit union gains start to erode?