Exciting Trends in Auto Purchasing

Exciting Trends in Auto Purchasing
Steve Hoke, Director of Loan Growth Products
April 2015
LLAA,LLSP-1149422.1-0315-0417
CUNA Mutual Group Proprietary
Reproduction, Adaptation or Distribution Prohibited
© 2015 CUNA Mutual Group, All Rights Reserved.
Overview
Auto Purchasing Trends
• Specific to Credit Unions
• Specific to Industry
• Behavioral Based
The Age of Disruption
• Characteristics and Recognition
• Marketplace Lending
Following the Mobile Mind-Shift
• Optimizing Opportunities
• Considerations for the Credit Union
2
The full 2014 year finished
up 5.9% from 2013 to
____ million vehicles sold,
according to Autodata.
A
15.91 million
B
16.52 million
C
14.65 million
D
15.33 million
5 things we learned from Dec. and 2014 auto sales, USA Today, January, 7 2015
3
IHS Automotive predicts U.S.
auto sales to reach ____
million in 2015.
1
A
15.7 million
B
16.2 million
C
16.9 million
D
17.1 million
Global Auto Sales to Hit 88.6 Million in 2015, Auto Blog, 2/3/15; http://www.autoblog.com/2015/02/03/global-auto-sales-forecast-growth-ihs/
4
According to Experian,
the average monthly
payment for a new car
auto loan in 2014 was
___.
A
$389
B
$405
C
$352
D
$471
Source: Americans Borrowing Record Amount to Buy Cars, March 2014; http://www.cnbc.com/id/101461972#
5
Auto Purchasing Trends
Specific to Credit Unions
6
Credit Union Loans On the Rise
Used Auto Loan
Growth is up 12.1%
for all Credit Unions
1
15.74% of total loan
market share is held
by credit unions
1
2
1
2
Auto Loan Growth from the Inside Out, Callahan and Associates, Groove Car Inc. , 2014
Auto Loan Growth from the Inside Out, GrooveCar Inc., Experian State of the Auto Finance Market, 2014
7
Summary of Lending Trends
For all of 2014, loan balances rose 10.2% up from 7.3% to
2013
For all of 2014, credit union new auto loan balances rose
20.7%, the fastest pace since August 1995. Used auto loan
balances also reported a strong year, rising 12.1%.
Auto loans now make up 32.4% of the CU loan portfolio.
Credit Union Trends Report, CUNA Mutual Group, Feb 2015 (Dec 2014 data)
8
Credit Unions Offer A Great Deal For Consumers
Credit unions provide:
47% lower interest rates
for new car loans
49% lower interest rates
for used car loans
than traditional banks
“2013 Auto loan and lease report,” Sonia Garrison, Wallet Hub, 2014,
http://wallethub.com/edu/2013-auto-loan-lease-report/1875/
9
Auto Purchasing Trends
Specific to Industry
10
Consumer Buying – High Level
Automotive Sales 2005-2014 (in millions)
70
60
50
40
44.1
42.6
30
41.4
36.5
35.5
36.9
38.8
10.4
11.6
12.8
40.5
42.0
42.1
14.5
15.6
16.5
Used Cars
New Cars
20
10
0
17
16.5
16.2
13.3
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: CNW Research, Edmunds.com, March 2015
11
2014 Automotive Highlights
Average transaction price (what people actually paid) rose yet again
in December to $34,596*
Hottest vehicles for 2014 were compact and midsize SUVs*
Average window-sticker mileage rate up 5 mpg since October 2007*
Toyota brand again outsold Chevrolet to remain the No. 2 brand,
behind the Ford brand.**
*5 things we learned from Dec. and 2014 auto sales, USA Today, January, 7 2015
**Who won 2014’s best auto fistfights?, USA Today, January 6, 2015
12
Lending Trends Show Dynamic Shifts
More new-car buyers are opting for long loans:
A record 33.1% of loans at 72 months or
longer, with 84 months or longer at 3%1
More cash-strapped buyers getting
lower payments by leasing, which hit a
record at 26.5% of new-car transactions
in February 20141
1. “More car loans exceed 6 years as prices rev“, Chris Woodyard, USA Today, 3/12/14,
http://www.usatoday.com/story/money/cars/2014/03/12/auto-loans-longer/6292699/
13
Negative Equity Rising
27% of
New Car Buyers in
2014 had
Trade-in with
Negative Equity
Source: 27% of Car Buyers Trade-In “Underwater” Cars , Feb. 2015;
14
Sub-Prime Lending a Factor Again
Sub-prime customers took out
$129.5 billion in auto loans in the
first eleven months of 2014, over
¼ of total auto sales.
1
1
Source: The Next Subprime Crisis Will Ride on Four Wheels, 2/26/15
15
Sub-Prime Lending a Factor Again Cont.
Total Sub-prime Auto Loan Securitizations
1
Taking On More Risk:
Deals made up of auto
loans to borrowers whom
creditors deem riskier have
increased since 2010.
1
Investment Riches Built on Subprime Auto Loans, New York Times, 1/26/15
16
Auto Loan Balances Reach All-Time Record in 2014
In 2014, U.S. consumers carried the largest amount of auto loan
balances ever at $886
billion.
Source: Auto Loan Balances Reach $886B, 2/19/15, Credit Union Times
17
Auto Purchasing Trends
Behavioral Based
18
The Auto Purchase Journey
INTEREST
AWARENESS
BRAND
LOYALISTS
CONSIDERATION
PURCHASE
19
Car Buying Services
Type of Auto Buying Services Offered by CUs
13%
Online Portal
40%
13%
Auto Broker
None, with no plans to
implement
In House Consultant
27%
7%
Source: Online Car Buying Services, Green Profit Solutions, Inc., Jan. 2015
None, with plans to
implement
20
Competition
Auto
Dealers
Insurance
Companies
Retail
Outlets
21
Collaborative Consumption
Collaborative
Consumption:
Uber, Community Car, Lyft and
others offer auto-sharing programs,
potentially reducing auto loans by
10%
Millennials seem to place less
importance on car ownership than
previous generations do. They are
more open to sharing cars and to the
growing number of mobility services
“Five Subprime Auto Finance Predictions,” Arjan Schutte, Forbes, 10/21/13,
http://www.forbes.com/sites/arjanschutte/2013/10/21/five-subprime-auto-finance-predictions-and-why-you-should-care/
1
22
The Auto Purchase Journey
-
Subconscious cues
Passive engagement
Chance
exposure/experience
AWARENESS
-
Financing
Billing
Follow-up experience
Customized marketing
Refinancing
INTEREST
BRAND
LOYALISTS
PURCHASE
Online consumer
research
Social media/ influence
of personal network
-
CONSIDERATION
-
Online and offline
Customer service
Competing offers
23
Online Research Replaces Dealership Visits
Buying Process is Changing Remarkably
68% of car buyers visited only two dealerships
or fewer before buying
40% visiting only one dealer
1 in 6 skip test drive altogether
1
1 in 6 Car Buyers Skip Test Drive, Dealer Marketing, 4/15/14
24
The Age of Disruption
25
The Age of Disruption
NonAutomotive
Disruptors
• Apple Pay
• Amazon Prime
Automotive
Industry
Disruptors
•
•
•
•
Uber
Intermediaries
Tesla
Non-traditional Financing
26
Characteristics Of Successful Disruption
All-new technology or business model innovation
Provides better value than existing product/service offered by industry
incumbent
Value
Benefits
Cost
Adoption extends beyond early adopters into mainstream consumer
segments
Incumbents’ response is hampered by legacy cost structures,
infrastructure and regulations
Incumbent decline can be rapid and terminal
27
Themes In Retail Financial Services Disruption
Disruptors seek to:
• Use technology-driven business models, e.g., platform strategies
• Have a lower cost structure
• Find ways to bypass relevant laws and regulations
• Utilize low cost ways of moving money
• Aggregate customer data and monetize it
• Enter a single financial service before moving to other categories
28
Lending Club Quarterly Loan Issuance
Lending Club facilitated over $1.4 billion in new loans in Q4 2014
1600M
1400M
1200M
1000M
800M
600M
400M
200M
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014
Source: Lending Club Statistics, 3/16/2015;
https://www.lendingclub.com/info/statistics.action
29
Marketplace (P2P) Lending
Lending Club facilitated nearly $3.0 billion worth of loans
during the first three quarters of 2014, exceeding the 2013
full-year number of $2.06 billion.
Prosper originated approximately $1.3 billion in loans
through Q3 of 2014, compared to roughly $357 million in
2013.
With conservative metrics, marketplace lending is predicted
to grow to a $114 billion industry.
Source: Marketplace (P2P) Lending: 2014 Year in Review, Feb 2014
30
Following the Mobile Mind-Shift
31
Following The Mobile Mind-Shift
Use of Mobile Banking
Applications by Age: 2
•
Access to Financial Services is Changing
Smartphones are changing the way credit union
members conduct their financial business:
63% of Millennials,
aged 25-34
•
54% aged 35-49
•
36% aged 50 or
68% OF CREDIT UNION
MEMBERS WHO USE MOBILE
BANKING, DO SO MORE THAN
1x PER WEEK.
1
older
1 Mobile
2 Happy
as a Movement; 2/26/15; Credit Union Times
Bankers, Mobile Bankers; 9/17/14; The Financial Brand
32
Growth in Mobile
As of September of 2014, 71% of the
US population own a smartphone.
1
CUNA Mutual Group forecasts that
approximately 40% of loan transactions
on loanliner.com will come through a
mobile device.
2
1
2
Mobile Millennials, Nielsen Data, September 2014
CUNA Mutual Group Internal Report, March 2015
33
Optimizing Opportunities
1
RESPONSIVE DESIGN
2
CHANNEL MAXIMIZATION
3
ANALYTICS
WE MUST TAKE
ADVANTAGE OF
THESE
OPPORTUNITIES
AND
CHALLENGE
CURRENT BUSINESS
PRACTICES.
34
Considerations
THIS IS
THE WEB
THIS IS NOT
THE WEB.
THIS IS
THE WEB
THIS IS
THE WEB
THIS IS
THE
WEB
THIS
IS
THE
WEB
THIS IS
THE WEB
THIS IS
THE WEB
THIS
IS
THE
WEB
THIS
IS
THE
WEB
THIS
IS
THE
WEB
35
Maximizing Mobile Channel Opportunities
Mobile channel opportunities go
far beyond smartphones and
also include:
Online Loans for January 2015
Tablets
Hybrid devices (all the same OS)
Others: Smart TVS, Video game
consoles, Slingbox, and Apple TV
Desktops
Phone
Tablet
Other (E-reader, Game Consoles, Unknown)
CUNA Mutual Group, Internal Reports, Nov. 2013 to Jan. 2014
36
Optimization Leads to Extraordinary Opportunity
As of February 2015, 28% of all loan applications come through mobile
devices. This is more than 4x the volume since the launch in 2011.
The median age of a smartphone loan applicant as of January 2015 is
33, while the average age for a PC applicant is 41.
48% of members indicate they are interested in additional loan products
such as Credit Life/Credit Disability when they apply from
loanliner.com and Smartphone Loans.
CUNA Mutual Group, Internal Reports, 2015 data
37
Digitally Connected Customer Journey
INTEREST
AWARENESS
BRAND
LOYALISTS
CONSIDERATION
PURCHASE
38
Channel Considerations for the Credit Union
Be prepared for the
long haul
Don’t forget about
operations, tech
support, staff
education and
awareness
Yes, there is expense
associated with mobile,
but it can help generate
revenue too
Seek out and leverage
data and analytics
39
Takeaways
AUTO PURCHASING ACTIVITY IS HIGH
DISRUPTERS ARE HERE, MORE COMING
RESPONSIVENESS IS THE NEW MOBILE
40
41