Heading into the final months of 2023, it’s important for credit unions and their leadership teams to have a firm understanding of the large trends in the automotive industry. Staying current on industry trends can greatly impact credit unions’ auto loan portfolio strategies as they wrap up their year and begin to plan for 2024.
New issues going into 2024
After a difficult sales environment in 2022, the automotive industry has shown a noticeable recovery in 2023. Even as supply chain issues have continued to dissipate this year, new challenges emerged, including the ongoing threat of a potential recession, persistently high inflation, and the effect that global conflicts are having on supplies of vehicles and parts. These issues may make consumers think twice before investing in new and used models in the near future.
Furthermore, the United Auto Workers’ labor strike could impact supply and prices further, and the government’s decision to resume student loan re-payments may place additional pressure on sales of new vehicles, especially for younger consumer demographics.
This could spell more affordability concerns for consumers over the next several months—especially younger drivers. As the supplies dwindle, dealers will have less room to negotiate prices, and rebates and incentives will not be offered to entice consumers looking for a good deal.
Aside from supplies, carmakers may pass their new labor costs on to consumers. Ford executives are already talking about the need to offset the higher expenses in this latest deal. The automaker has said the UAW contract would add $850 to $900 per vehicle in additional costs.
However, the consumer has remained resilient since the pandemic, and there’s still plenty of pent-up demand for both new and used vehicles entering 2024. What’s important is how credit unions can use this information and these trends to continue to find ways to serve and grow their membership in 2024.
New and used vehicle sales
S&P Global Mobility expects U.S. light-vehicle sales on new vehicles to remain steadfast in a challenging environment, with year-end 2023 projections of roughly 15.2 million units, up slightly from estimates in January when industry experts initially predicted 15.1 million units. However, this projected total is up noticeably from 2022 totals of 13.4 million units.
Electric vehicle sales
Shoppers have been choosing electric vehicles at a higher rate than in years past, according to vehicle sales data from Cox Automotive. U.S. consumers purchased roughly 300,000 new battery-electric vehicles (BEVs) during the second quarter of 2023—a new record, according to Cox.
That figure is a 48% increase over the same time in 2022, and it’s also more EVs than were sold in all of 2019. Cox Automotive expects sales of fully electric vehicles in the U.S. will surpass the 1 million vehicle mark in 2023 for the first time ever.
This may present an attractive strategy for credit unions. By creating a unique EV finance approach while building on decades of expertise in auto lending, credit unions are well positioned to win back market share from big banks and captives by tapping into more of the EV market potential.
What’s more, “going green” is a significant interest among younger car shoppers, and embracing this slice of the market could be a key strategy in helping credit unions re-capture younger demographics.
The importance of vehicle protection plans
Lenders have long known that it is important for drivers to keep vehicles in the right operating condition. However, a changing economic landscape in 2023 means lenders and dealer partners are now looking at protection products as a way of helping to minimize the costs associated with expensive repairs.
In fact, car repair costs are up almost 20% in the past year, according to the consumer price index—more than six times the national inflation rate and among the largest annual price increases of any household good or service (2). Vehicle protection plans can be a valuable tool in helping credit unions create value among their members by keeping cars in proper condition without expensive repair costs.
Increase in online shopping and digital tools
Like virtually every other aspect of shopping today, it’s becoming easier for consumers to shop, secure financing, and complete the purchase of a vehicle online. This is an important trend for credit union executives to understand as they review their organization’s strategy moving forward.
Credit unions are facing increased pressure from larger financial institution competitors that are attracting younger members with sophisticated digital tools, along with multibillion-dollar investments in artificial intelligence and other emerging innovations. Just 26% of Gen-Z and 14% of millennials use credit unions, according to a recent GOBankingRates survey, with most opting to instead use a large bank or online financial institution.
Online shopping for vehicles continues to increase in popularity, and it has also become more intimate for the consumer. This also means that an increasing number of car shoppers want the power to research, shop, educate themselves, and select protection products for their vehicles from the comfort of their own homes. Lenders and dealer partners are taking notice, and they continue to look for opportunities to include product research and purchase options online.
Understanding these key trends will help credit union executives better plan for the right automotive portfolio strategy heading into 2024. With the volatile market and economy, higher inflation and interest rates driving up prices on vehicles and repairs, and the need to modernize through online shopping and electric vehicle financing choices, these strategies can help credit union executives show great value to their existing membership while re-capturing market share among younger demographics.