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MCUL Executive Summit

MCUL Executive Summit. National Auto Lending Market Trends Michigan Auto Lending Trends CFPB Update Gen Y’s Influence Results of National Auto Research. Presented By Tony Boutelle, President & CEO. Auto Lending Industry Trends.

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MCUL Executive Summit

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  1. MCUL Executive Summit National Auto Lending Market Trends Michigan Auto Lending Trends CFPB Update Gen Y’s Influence Results of National Auto Research Presented By Tony Boutelle, President & CEO

  2. Auto Lending Industry Trends

  3. New Car Sales ExperiencingMonthlyLevelsNot SeenSince 2006 U.S. New & Used Auto Sales 2003 – 2013 YTD 57.8M 60.3 +5.0% +3.4% +9.5% Source: CNW Research

  4. Auto Loans Comprising Nearly a Third of Credit Union Portfolios • 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 Source: Callahan & Associates’ Peer to Peer Software Based on all U.S. credit union’s loans outstanding Source: Callahan & Associates’ Peer to Peer Software. Based on loans outstanding

  5. Aging Vehicles on the Road Helping Demand for New Cars Aging autos bolstering car sales Autos 10 years or older Year Vehicle Made

  6. National Market Share 13.25% 12.50% 17.84% 17.39% 39.01% *Other – Buy Here/Pay Here and Finance Companies less than 100 loans per month. Source: AutoCount, an Experian Company. Does not include private party transactions.

  7. Credit union’s continue to hold a 17% market share despite aggressive competition Auto Loan Market Share by Lender Type July 2013 YTD Does not include leases. Source: AutoCount, an Experian company

  8. Lenders are Taking on Slightly More Risk for New Car Sales to Augment Loan Growth Risk Distribution of New Loans YOY Change of New Loans YOY ChangeSource: Experian Automotive

  9. Risk levels for Used Car Sales Remains Stable YOY Change of Used Loans Risk Distribution of Used Loans YOY ChangeSource: Experian Automotive

  10. Nationally CUDL Credit Unions Rank as a Top 5 Market Lender Top US Auto Lender Rankings through July 2013 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 Source: AutoCount, an Experian Company

  11. Credit Union Indirect Delinquencies & Charge-offs Stay LowIndirect Charge-offs of 0.57% at Lowest Level in Years Credit Union Indirect Delinquencies and Charge-offs Data as of June 30, 2013 for All U.S. Credit Unions Based on dollar amount Source: Callahan & Associates’ Peer to Peer Software Source: Callahan & Associates’ Peer to Peer Software

  12. CU Automotive Delinquencies are Lowest in the Market +0.7% -0.7% -9.1% +11.1% -4.6% Total automotive delinquencies based on units Source: Experian Automotive’s State of the Automotive Finance Market Q2 2013

  13. Auto Loan Durations Continuing to Extend Longer, with New Trend Towards 8 Year Policies ?? 96 mos New = 142,483 Used = 301,051 Used avg = 66 mos (v 64 YA) new avg = 75 (v 73 YA) Source: CUDL System

  14. Michigan Market Competitors and their Advantages

  15. Michigan Auto Loans Have Increased by 4% Over the Same Period One Year Ago Top Auto Lenders – Michigan – January through July 2013 +4.7 pts +0.8 pts Loans are retail sales of franchised and independent dealerships and does not include fleet sales or leases. Source: AutoCount, an Experian Company

  16. Top 10 Lenders By Credit Risk Mix – New Vehicle Loans Credit Tier for Top Michigan Lenders January – July 2013 +4.7 pts +0.8 pts Source: AutoCount, an Experian Company Note: Credit score based on ScorexPLUS Prime 680+, Non-prime 620-679, Subprime 550-619, Deep subprime <550

  17. Top 10 Lenders By Credit Risk Mix – Used Vehicle Loans Credit Tier for Top Michigan Lenders January – July 2013 +4.7 pts +0.8 pts Source: AutoCount, an Experian Company Note: Credit score based on ScorexPLUS Prime 680+, Non-prime 620-679, Subprime 550-619, Deep subprime <550

  18. Michigan Credit Union Auto Loans Have Increased by 17% Over the Same Period One Year Ago Top Credit Union Auto Lenders – Michigan – January through July 2013 +4.7 pts +0.8 pts Loans are retail sales of franchised and independent dealerships and does not include fleet sales or leases. Source: AutoCount, an Experian Company

  19. Michigan Credit Unions are Exceeding National Market Share 11.70% 6.53% 11.20% 30.51% *Other – Buy Here/Pay Here and Finance Companies less than 100 loans per month. Source: AutoCount, an Experian Company. Does not include private party transactions.

  20. Credit Unions are Acquiring an Ever Increasing Number of Michigan’s Auto Loans Michigan Auto Loan Market Share by Lender Type July 2013 YTD Does not include leases. Source: AutoCount, an Experian company

  21. CFPB Update and Potential Impacts

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

  23. 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

  24. Possible Exposure Yes, but Unlikely to End Rate Participation DealerImpact Credit Union Impact • 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 • 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

  25. Gen Y Influence on Auto Lending

  26. Gen Y Now Influences More Than Half of All Auto Loans In their 20s – 30s 40% of Auto Purchases 21% of US Population 21% Gen Y 40% Gen Y 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

  27. 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

  28. 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

  29. National Auto Loan ResearchMarch-May: 2013 • 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 Member &NonMember Focus Groups • 48 States represented; Age – 23-45 • Borrowed within 24 months • New or Used Vehicle Loans National Online Survey

  30. 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! • Borrowingfor the car is just the last part of buying the car. It’s part of the same event.

  31. Where Do Age 23-45 Search for Cars? Online (About 75%) Not Online (About 25%) NEW vehicles: • Dealer sites • Manufacturer websites • Edmunds.com • KBB.com • ConsumerReports.org • AutoTrader.com • Google • Cars.com USED vehicles: • Dealer sites • AutoTrader.com • Cars.com • Carfax.com • KBB.com • CarMax.com • Edmunds.com • Craigslist • ConsumerReports.org • Google 12% usage or higher; Descending usage order top to bottom. Source: National Auto Resource – Goldman Consulting & Strategy

  32. Pre-Approvals: Did Buyers Seek Them? > 7 in 10: “NO” … But > 25%: “YES” Source: National Auto Resource – Goldman Consulting & Strategy

  33. Did Pre-Approved Consumers Finance with Pre-Approval Provider? • “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.” Source: National Auto Resource – Goldman Consulting & Strategy

  34. 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.

  35. 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?

  36. What Was “Very Important” to Consumers in Choosing Their Lender? Source: National Auto Resource – Goldman Consulting & Strategy

  37. How Many Loan Provider Options Did the Dealer Present to the Consumer?* • Most Consumers see • 1 Offer at the Dealer! *Among Consumers who financed at the dealership. Source: National Auto Resource – Goldman Consulting & Strategy

  38. How Often Did Consumers with an Intended Lender Finance Elsewhere When that Lender was Closed? 25%! Source: National Auto Resource – Goldman Consulting & Strategy

  39. 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

  40. Conclusions and Take Aways

  41. Opportunities for Action: • Auto buying + Auto loan = 1 Event • Get in front of the loan • Get members pre-approved • Car Sales/Invest in America • Mobile: Offer sales/financing tools • Consider external shopping hours • Build relationships with dealers

  42. Car sales in 2014 expected to reach pre-recession 2006 high levels New Car Sales Used Car Sales (units in millions) (units in millions) Source: New Car Sales – Automotive News; Used Car Sales – CNW Research

  43. The Planning Horizon 2014 – 2016 will see the Return of Lower More Normalized SAAR Growth Rates Annual Growth Rate in U.S. Vehicle Sales New Cars Used Cars Forecast Source: CNW Research

  44. While Large Demand Exists in Sub Prime Lenders Still Remain Reluctant to Return to 2007 Approval Levels Auto Loan Application Approval Rates Source: CNW Marketing Research.

  45. During 2013 Saw the Largest Decline in Credit Unions as Mergers Increased Shifting Activity to Larger Credit Unions # of credit unions under $10M decreasing steadily 7,706 5% $500M+ 6,818 13% By 2020, there could be fewer than 5,000 credit unions 6% $100-$499M 16% 23% $25-$99M 26% 19% $10-$24M 19% 40% 33% <$10M US Credit Unions by Asset Size, June 2013 2013 Figures as of: June 2013 Source: Callahan & Associates’ Peer to Peer Software

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