CU Direct develops connection between lenders and Tesla

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As EV sales buzz, CU Direct is bundling a feature that will make it easier for credit unions to participate in buyer loans from Tesla, the largest maker of electric vehicles.

Bob Child, chief operating officer at CU Direct, said Irvine, Calif.-based CUSO expects a system to work later this year that will allow Tesla online shoppers to choose a checkout. popular as a lending option.

The main goal is to “keep credit unions in the game,” he said.

In an interview with CU time On Monday, Child said credit unions have done well this year in auto loans, despite challenges from sales channels bypassing credit unions, rising interest rates and limited supply of new cars.

CU Direct owns the CUDL auto lending network, which last year funded a record $46.9 billion in auto loans through its network of 16,000 dealerships.

CUNA data showed credit unions held $272.3 billion in used car loans on Feb. 28, up 12.3% from a year earlier. New auto loans rose just 0.5% to $145.3 billion.

In the first quarter, Childs said total auto loans funded were about 20% higher than in the first quarter of 2021. New auto loans were up 5% in the first quarter, while used loans were up about 22%.

The shortage of computer chips has held back vehicle production for more than a year, shifting more buyers to the used-car market. Before the pandemic, about 74% to 75% of auto loans funded were for used vehicles.

“That number is approaching 77% in 2022,” Child said.

And the shortage began driving up used car prices last spring. Cox Automotive found the average used car listing price was $27,246 at the end of March, down slightly from February but still 28% higher than a year earlier. early.

“It’s just crazy,” Child said.

So far, higher interest rates haven’t had a noticeable impact on lending volumes, Child said.

One reason is that rates increased in March and April as tax refunds arrive. Refunds are the biggest factor that typically makes March the biggest month for used car sales. Cox Automotive analysts said IRS delays in delivering refunds are likely to move this year’s peak to April.

Kid said the effect of higher interest rates is likely to become evident in May as the repayment factor disappears.

Meanwhile, with prices and interest rates rising, the only way buyers can reduce monthly payments is to extend terms.

Longer terms have become more common. 72-month loans now represent 42% of loans, compared to 32% before the pandemic. 84-month loans now represent about 11% of loans, compared to 5% before the pandemic.

The limited production of new cars during the pandemic will be felt in the used car market.

“A year or so from now, you’ll start to see a tightening in the used car market.”

One factor that could bring relief is the production of electric vehicles. So far, Austin, Texas-based Tesla and Irvine, Calif.-based Rivian Automotive, Inc. have avoided chip shortages and ramped up production.

Tesla delivered more than 936,000 vehicles last year, compared to 499,550 in 2020 and around 367,500 in 2019.

Rivian, founded in 2009, delivered 920 vehicles last year and another 1,227 vehicles in the first quarter, which it says puts it on track to meet its goal of selling 25,000 cars in 2022.

As new companies, Tesla and Rivian aren’t bound by laws that require older manufacturers to sell through dealerships. Instead, they sell direct.

Consumers who order a Tesla online have a drop-down menu of lenders, which includes some credit unions. However, Tesla wants a limited number of options in the drop-down menu.

Child said CU Direct’s deal with Tesla will allow for the development of a system in which one of the choices would be something like “a credit union.”

When a consumer makes this choice, a decision engine will direct the loan to one of the eligible credit unions that are part of the program. The loan will be granted based on the lender’s preferences for terms, credit ratings and other criteria.

Child said one of the goals was to allow credit unions to enter or exit the list of lenders based on their lending appetite. For example, a large credit union that had been an early lender to Tesla has now pulled out because its portfolio focused too much on electric vehicles.

Under this program, credit unions must have robust technology to manage loans. “Speed ​​of execution is key,” Child said. “If speed is a problem, it will create a problem.”

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