Cautionary Auto Lending Trends for 2019 – Part 2
Pictured Above: General Motors Co.’s Detroit-Hamtramck Assembly Plant in Detroit, Michigan. Photographer: Jeff Kowalski/Bloomberg
By Tim Dalton | EVP CU Insurance Solutions
In my last article, I had expressed a few predictions about the future of auto lending and the impacts they may have in the near future. Sadly, we are seeing auto manufacturers start to react to the changing marketplace at least domestically. I believe there is still an underlying fear of what happened during the bailout era for the auto manufacturers.
Late in November of 2018 GM announced it will close 7 factories, cutting 14,000 jobs by the end of next year. This will boost GM’s cash flow by 6 billion dollars by 2020. The reasoning behind this, so told by GM, is the realignment to prepare for electric and self-driving cars. Yet after digging deeper into the major changes, some of the real facts emerge. GM stated that “four factories in the US could be shuttered by the end of 2019 if the automaker and the unions don’t come up with an agreement to allocate more work to those facilities.” At the same time, GM is looking to abandon some of its slower selling sedan models. These lines include The Buick Lacrosse, the Chevy Impala, Cadillac CT6, and the Chevy Volt (fully electric car) and Cruze. The Cruze will continue to be made in Mexico but only for other markets outside the US.
Not to degrade these models that are being dropped, but they are of lower cost than crossover models and they are not selling. Why? The leasing markets. More consumers were leasing in 2015, 2016 and even 2017 and that will start to pour more preowned autos on to the market, hence driving down wholesale prices and lowering values across the board. Still, why were consumers not buying these autos? It comes down to value and what you want for your dollar. You can buy a Chevy Impala for $360 a month or lease a Yukon for $360 a month. You decide.
GM stated that “Most of the one-shift plants are sedan plants” and “That’s a real mismatch in a market where 40 percent of the vehicles sold are crossover utilities.” GM’s thought behind this is to “take action” while the economy is strong. However, the comment stated by GM at this year’s Automotive Outlook Symposium (AOS) was “To stave off the fire sales of the past;” is this statement truer to the positioning of their business model?
This comes down to a few variables to be aware of and how we continue to lend in the auto market for the future. My first thought is: how will this affect the Loan to Value (LTV) on loans that are currently on the books at our Credit Unions? With the loss of these product lines, how will it affect their values? In the past, when product lines were dropped, values have pitched more heavily downward in value then standard depreciation predicts. Even in a strong marketplace, we see loan values higher than values of the collateral for 70% to 80% of the loan cycle. In your typical 60-month term loan, most vehicles do not turn right side up in value until year 4, and that is if the vehicle is maintained well and kept within the 15,000 miles per year range. My second concern is: how do we lend to members with significant loan deficits at trade, who are left with no other option because of a total loss or severe mechanical issue?
2014 CHEVROLET Impala Limited Based on dealer retail value $10150.00 NADA at 24 months
Disclaimer: Projected Future Values are provided by Automotive Lease Guide. The Estimated Primary Insurance Settlement reflects estimated primary insurance settlement values after a total loss once the deductible has been applied and after adjustments for local market comparisons, actual vehicle condition, mileage and vehicle options. All values represent future projections and are not purported, warranted, or to be construed as absolutes.
I am not predicting that members/consumers will stop paying their loans. However, my concern is with a 22 month turn time where consumers are trading their cars in and high LTV’s are common, what are we going to do to protect both our members and our Credit Unions as our loan values start to change pace in this new auto market? First off, there will be a consumer reaction. Consumers will not be able to get the value they need to purchase and pay off their existing loan balance. Or their payment will be too high to afford, especially in a higher interest rate market place. Credit Unions will want to see more money down to control LTV in a declining value market, steering more members to just keep their current vehicles longer. In turn, this will slow auto sales, slowing auto lending and changing our short-term higher interest note income. We need to be thinking about how to protect the current outstanding loans since the future is looking to a change in loan volumes and loan values.
RVI Analytics UVPI (Used Vehicle Price Index)
But how do we protect those members that do not have the option of just keeping their vehicle longer because of a totaling event or severe mechanical breakdown? The answer is simple, by adding Guaranteed Asset Protection (GAP) to loans to stave off potential loan deficits for our members and adding Vehicle Service Contracts (VSC) help or solve future mechanical breakdowns problems. In this changing market, the relevance of these types of programs is more necessary than ever to protect our Credit Unions’ members.
How do we protect our Credit Union? Through the protection of programs such as LSI (Lenders Single Interest) or CPI (Collateral Protection Insurance). Both programs have benefits for protecting the Credit Union’s assets. LSI is a fee that is charged during the inception of an auto loan. This protects the Credit Union in cases of damage or a total loss even if the Credit Union is in a situation where repossession is occurring. There is no tracking for Credit Union staff since it is charged on every loan. CPI is a no charge scenario, but this demands the member carry insurance for the term of the loan at the same time the Credit Union is charged with tracking insurance information. If the member lapses on their insurance premium forced-place insurance is placed on to the loan modifying the member’s monthly payment. This insurance does not protect the member and does not constitute insurance coverage should the member be involved in an accident. It only protects the Credit Union asset during a repossession event.
Lastly, how can staff help to protect the Credit Union? Training on GAP, VSC and Debit protection more relevant; teaching staff the relevance and value of these programs and the “Why” behind them. These programs offer higher value to your members at a lower cost than the retail business in the marketplace. The better your staff understands the “Why” behind your Credit Union, the more successful the Credit Union will be and the happier your members will be.
Continue to be the best option in your marketplace by offering to help your members to be more financially viable. If your members are financially healthy then so is your Credit Union.
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The Difference Between Workers’ Comp Vs. Disability Coverage
By Elizabeth Ingram | Vice President – Operations CU Insurance Solutions
Knowing when workers’ compensation applies rather than disability insurance coverage can be confusing. Here are a couple of pointers to help distinguish between the two different types of coverage:
Workers’ Compensation
Workers’ compensation (once known as workman’s compensation) is for job-related injuries and illness. If an employee gets injured in the scope of their job and loses time or requires a medical visit, you should report the injury to your workers’ comp carrier. If you work with Equinox and aren’t sure what to do, reach out to Bev for help. Remember that injuries that occur in the parking lot or off of your premises may also be workers’ comp and it’s better to report than not. Your workers’ compensation carrier will determine if the claim meets the definition of workers’ comp and work with you and your employee to pay out the claim. Workers’ compensation coverage provides coverage for medical costs (which may not be covered by your employee’s medical insurance) and for time lost. They also help get employees back to work. You may be required to have workers’ compensation coverage in the state of Maine.
Disability Insurance
Disability insurance is for non-work-related injuries or illness. It is a method of income replacement when an employee out of work for an extended period of time. You are not required to provide your employees with disability coverage, but it’s a great way to show that you care and get them back to work. It does not provide full income replacement.
- Short-term disability (STD) coverage begins after 1-30 days and generally runs until the employee is medically able to return to work or until 90 days.
- Long-term disability (LTD) generally begins after 60 or 90 days and generally runs until the employee is medically able to return to work.
- You can offer employer paid STD, LTD, both, or neither. You also have the option to offer voluntary disability coverage which is employee paid.
Like the workers’ compensation carriers, disability carriers will work with you and your employees to get them back to work.
Remember too that workers’ compensation and disability coverage may run concurrently with job protections such as Family Medical Leave (on the state (15+ employees) or national (50+ employees) level) and the Americans with Disabilities Act (ADA) (employers with 15+ employees).
Please reach out to our benefits (hbaird@insurancetrust.us or kquint@insurancetrust.us) or commercial lines (bmacmillan@insurancetrust.us) divisions with any questions.
How to Freeze Your Child’s Credit for Fraud Prevention
By Elizabeth Ingram | Vice President – Operations CU Insurance Solutions
Federal law now allows adults to freeze their credit for free and allows parents to freeze the credit of their children who are under age 16 for free as well. Being able to freeze a child’s credit is a new measure that is helping to make it harder for identity thieves to steal your child’s credit under the radar and helps your child maintain an empty credit history until they’re ready to start out in the world. The Maine Credit Union League posted an article detailing more about this change here.
To Get Started
Go to https://www.identitytheft.gov/creditbureaucontacts. You’ll need to contact each of the credit bureaus separately either online or by phone as an adult. For a child, the credit bureaus require you to mail them your request. Be prepared to put a little time into this and remember that the freeze won’t be instantaneous. Specific directions and links to forms are below, but we recommend that you gather your child’s social security card, birth certificate, your proof of identity, a copy of a bill (as detailed below for Experian), and proof that you are an authorized representative of your child before you get started.
Equifax
(https://www.equifax.com/personal/credit-report-services/): to freeze a child’s credit, you need to complete a paper form along with copies of your child’s social security card and birth certificate as well as proof of your identity (government ID, SS card, or birth certificate) and proof that you are the parent or authorized representative (minor’s birth certificate, court order, executed & valid power of attorney, or foster care certification).
Experian
(https://www.experian.com/freeze/form-minor-freeze.html): to freeze a child’s credit, you need to mail them a paper form with your child’s full name, SS number, date of birth, current mailing address and previous addresses for the past 2 years, your full name, SS number, date of birth, and current mailing address and previous addresses for the past 2 years. You will also need to include copies of your child’s social security card and birth certificate as well as proof of your identity (government ID, SS card, or birth certificate), a copy of a utility bill, bank, or insurance statement that includes your name, current mailing address, and a recent date of issue. If you are the child’s guardian, you need to supply a copy of the court document naming you as guardian as well.
Transunion
(https://www.transunion.com/credit-freeze): to freeze a child’s credit, you need to mail them a written request to freeze the child’s credit; I recommend that you include the information requested by Equifax and Experian on their forms. You will also need to send copies of your child’s social security card and birth certificate as well as proof of your identity (government ID, SS card, or birth certificate) and proof that you are the parent or authorized representative (minor’s birth certificate, court order, executed & valid power of attorney, or foster care certification).
Remember, do not send any original documents to the credit bureaus as they are unable to return materials.
Cautionary Credit Union Auto Lending Trends for 2019
Article by: Tim Dalton EVP CU Insurance Solutions | CUAlliance
Over the last several years, credit unions have invested an increasing percentage of their loan portfolio in the auto lending market. In fact, within the past four years, credit union new and used auto loan balances have increased 64% nationally.
At the same time, credit unions have been increasing activity with indirect lending programs. Indirect loans now make up 59.6% of the auto lending marketplace nationwide. With 35% of our credit unions holding indirect loans nationally.
This “Auto Asset Quality” chart below from Callahan Analytics shows credit unions are seeing favorable decreases in delinquency rates by 4 basis points and a decrease in charge-offs by 4 basis points since 2017. These changes can be attributed to several variables. Stronger lending guidelines, loan protection services and better collections process.
This brings us to 2019. According to the consensus forecast from the 2018 Automotive Outlook Symposium (AOS), the growth rate of the U.S. economy is predicted to be above its long-term average in both 2018 and 2019 (though growth next year is anticipated to be moderate). Light vehicle sales are forecasted to decrease from 17.2 million units in 2017 to 17.0 million units in 2018 and decrease to 16.7 million units in 2019.
Not only are light vehicle sales are forecasted to decrease in 2019, but auto industry projections also show all of the major manufacturers are preparing for a change in 2019.
Tom Kontos noted at AOS this year that auction volumes are likely to continue increasing over the coming years chiefly because new vehicle sales reached substantial levels in 2015–17 and these will shortly generate a greater supply of used vehicles. He said he expects the wholesale used vehicle supply to grow 5% on a year-over-year basis in 2018, inducing a 2% to 3% decline in wholesale prices this year. The increasing supply will soften wholesale prices for vehicles.
Analysts at Morgan Stanley are already stating that Automotive sales are “clearly on the downslope post peak,” and “We’ll need more incentives and higher fleet mix just to stand still.” Hoping to create market stabilization with inventory controls.
General Motors has already started to gear down to stave off the impending “fire sales of the past”.
Effect on Credit Union Lending
This type of change in market conditions could have a twofold effect on current outstanding loans in your portfolio:
- A potential devaluation of your current collateral – With a 5% increase in the supply of used vehicles and an expected decline in wholesale vehicle prices, the value of vehicles will likely decrease.
- Member demand or willingness to purchase new vehicles – With less attractive new vehicle sale prices, members will likely keep their vehicles longer or choose to buy used over new in some cases.
Not to be doom and gloom in regards to future auto lending but the proposed question to the CU Insurance Solutions is how do we help protect our clients’ income and assets in what appears to be a declining sector over the coming year. CU Insurance Solutions is dedicated to continually reviewing the conditions of the marketplace and providing tools to help credit unions navigate new challenges in that marketplace as they arise.
It should be noted that Maine has always been a microcosm of difference from the national marketplace. I am not saying we are unaffected by the national mainstream we just lag behind it.
References:
- Callahan Analytics
- 2018 Automotive Outlook Symposium
- Morgan Stanley
- General Motors Corporation
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Providing the Required Employee Benefits Notices to Employees
Open enrollment season is upon us. Employers are required to provide employees with certain benefit notices during this time of year. It is important to know which notices your group is required to provide.
For example, the summary of benefits and coverage (SBC) must be provided at open enrollment time. Other notices must be distributed annually, such as the Women’s Health and Cancer Rights Act (WHCRA) notice and the Children’s Health Insurance Program (CHIP) notice. CU Insurance Solutions includes these notices in employee packets to help our clients satisfy this requirement.
However, there are some notices that will vary by group. For example, Employers with Medicare Part D eligible individuals must notify them about whether the drug coverage is creditable or non-creditable before October 15 each year. Employers may not easily be able to identify those who are eligible for Medicare Part D, so many employers choose to satisfy this requirement by providing the notice to all plan participants.
Groups that are subject to ERISA must provide new health participants with a Summary Plan Description (SPD) for each benefit offered within 90 days of when coverage begins. In lieu of a SPD, a “wrap” document can satisfy this SPD requirement in one document for all plans offered. The(se) documents needs to be maintained annually and if any material modifications have been made, updated notices must be provided to participants at least every 5 years. (If no material modifications have been made, every 10 years.)
Groups’ health plans that are subject to COBRA must provide a written General Notice of COBRA rights to covered employees within 90 days after their health plan coverage begins. This is often added to open enrollment materials as it will satisfy the requirement for new enrollees added at open enrollment. It is advisable to include this in any new hire packets as well.
The Notice of Patient Protections is required when plan participants are required to designate an in-network primary care provider. This is often included in the insurance certificate provided by the issuer or Summary Plan Description.
CU Insurance Solutions works closely with clients to assist in complying with State and Federal laws. If you have questions about your responsibilities as an employer or would like assistance, feel free to contact us. Thank you and here’s to a successful season!
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Call Center Services for Helping Your Credit Union to be #AlwaysLIVE
CU Insurance Solutions is partnered with Lending Solutions Incorporated (LSI), an innovative company helping credit unions grow their loan volume while serving their members more efficiently. LSI provides customized “#AlwaysLIVE” programs that act as an extension of your credit union by serving your members beyond traditional business hours to stay competitive in today’s demanding service environment.
With consumer debt set to reach $4 trillion by the end of the year, members today are more stressed about their personal finances than ever. When people are stressed, they want to connect with someone LIVE to ask questions, reduce their fear and celebrate their Key Life Moments. Even today’s “Digital Native” segment of members wants to connect with someone LIVE to talk about rates and programs when filling out a loan application.
Being #AlwaysLIVE with LSI can enable credit unions to engage, connect and convert more of your in-market members, as well as provide Remarkable Service for account inquiries, outbound campaigns and collections. In today’s time-starved world, LSI’s solutions enable you to connect your members with a warm and friendly voice any time of day and anywhere your members may be.
Consumer Lending
- #AlwaysLIVE loan processing and underwriting
- Decisions provided while the member is on the phone
- LSI interfaces with many leading data processors
- Cross-selling
Debt Management
- #AlwaysLIVE outbound calling
- Payment Reminder proactive for under 30 days
- Debt Collection for between 30 and 120 days
- Updates provided to client’s database
Mortgage Lending
- #AlwaysLIVE service
- Member access by phone or internet
- Member needs analysis consultation
- Third party platform support
- Variable service level options
Member Service
- #AlwaysLIVE and WebChat service
- New member application processing
- Core connections with API
- Disaster recovery and business continuity
- Cross-selling of lending and deposit products
Digital Lending
- #AlwaysLIVE service
- Proprietary WebReach service
- Automated decisions
- Underwriting on non-automated decisions
- Mobile application
- Network of data-processing interfaces
Outbound Campaigns
- #AlwaysLIVE service
- Micro loan
- New member welcome
- Back-to-School
- Credit card
- Holiday loans
- Credit card activation
- Mortgage loan
- Auto loan
- Member referral
- Member surveys
- Refinance
Indirect Underwriting
- #AlwaysLIVE service
- Third party indirect lending platforms
- Decisions based upon client guidelines
- Competitive response times for dealers
For more information, contact CU Insurance Solutions Executive VP, Tim Dalton, at tdalton@insurancetrust.us or complete the contact form below.
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Introducing our New Property & Casualty Account Manager
CU Insurance Solutions and Equinox are excited to announce the addition of a new employee to our team.
Sarah Nash has been hired for the position of Account Manager – Property & Casualty.
Sarah brings over ten years of experience in insurance account management to our team. She is well versed in both Personal and Commercial Lines insurance. Sarah’s previous role in claims management gives her a unique perspective to assist clients and adjusters throughout the claims process.
Sarah was born and raised in southern Maine, attended Bonny Eagle High School, and is proud to remain a member of the same community she grew up in. Sarah enjoys spending time with her family and friends, as well as sewing, drag racing, volunteering, comedy, and competitive shooting.
“I’m excited to be part of such a positive environment. Not only is everyone focused on providing the customer with best service and coverage, but we are also focused on assisting each other to be the best team possible. A smile can be heard when speaking to someone, and everyone on our team is proof to that statement.”
As Account Manager for P&C, Sarah will be responsible for providing sales and service for personal lines insurance and will maintain knowledge of our products, client data and reporting within our management system.
Introducing our New Learning and Development Trainer
CU Insurance Solutions is pleased to announce the addition of a new employee to our team.
Trevor Pietila has been hired for the position of Learning and Development Trainer
Trevor was born and raised in Sanford Maine, attended Sanford High School and graduated from the University of Maine in Orono with a Bachelor’s Degree in Finance and Business Management. Trevor comes to us with experience working in Lending and Member Services for a credit union in Maine. Trevor enjoys the outdoors, watching sporting events, gardening, skiing, fishing and home improvement projects.
“I am very excited to be working with CU Insurance Solutions for the opportunity to help credit unions. My goal is to use my perspective in Member Lending and Member Services to create valuable training and education programs for our credit union partners.”
As Learning and Development Trainer for CU Insurance Solutions and its subsidiaries, Trevor will have the responsibility of coordinating and providing live and web-based training programs for CU Insurance Solutions’s credit union clients. In addition, Trevor will be learning the programs in the Commercial Lines division to assist the department.
Introducing our New Director of Personal Lines
CU Insurance Solutions and Equinox are excited to announce the addition of a new employee to our team.
Sharon Little has been hired for the position of Director of Personal Lines.
Sharon brings more than 35 years of insurance experience to the position. In previous employment, she held roles from claims to P&C agent, Life agent and management. Sharon was born and raised in Greater Portland, attended Falmouth High School and Andover College. Sharon enjoys spending time with her husband and two grown children as well as gardening, reading, being outdoors and traveling.
“I am pleased to be working with the Equinox division of CU Insurance Solutions and am thrilled to see how my background seems to have led me to my position here with the credit union family. I look forward to working with credit union members, providing great insurance products and service to enhance their credit union experience. I believe in local, friendly customer service and educating the public on why they are buying insurance so that paying the bill is a better experience.”
As Director of Personal Lines, Sharon will be responsible for proving sales and service for Personal Lines Insurance and will maintain knowledge of our products, client data and reporting within our agency management system. Sharon will collaborate with our Marketing Director to assist with marketing efforts and will work alongside management to provide financial oversight for the Personal Lines division.
Blueprints for Credit Union Success Workshop at America’s Credit Union Museum
CU Insurance Solutions and CUAlliance are pleased to sponsor a special Fall CU Insurance Solutions University Workshop to be held at America’s Credit Union Museum in Manchester, NH on September 17-18, 2018.
This dynamic workshop will be split into two focused 1-day sessions. On Day 1, our morning session titled “Ready. Set. GROW!” will be presented by Julie Ferguson. This workshop will be focused on growth strategy and business development topics.
Our afternoon session titled “Managing and Compensating Performance” will be presented by Mike Higgins. This workshop will be focused on real-world examples of how credit unions successfully manage and compensate for performance.
On Day 2 our “Amplify Member Engagement” workshop with Julie Ferguson will explore what it means to live the brand, be passionate about making a difference, define needs, and provide members with solutions.
During the day, experience the history of the credit union movement with a tour of America’s Credit Union Museum. After the event, step out and enjoy the great restaurants and nightlife that downtown Manchester, NH has to offer.
About Julie Ferguson
I spent sixteen years at First Tech Federal Credit Union in the Pacific Northwest before going out on my own and starting JRF Consulting Services in 2009. My financial services career began as a part-time Teller and took me on a journey that included stops as a Loan Officer, Branch Manager, Director of Operations, and Business Development Director.
While at First Tech, I developed strong relationships with SEGs like Microsoft, Amazon.com and Google. When First Tech became Microsoft’s credit union, my staff and I grew the relationship from 0 to 15,000 members in 7 quick years. We were problem solvers for our SEGs and the community, and focused on building trust and creating opportunities to educate employers and their employees on a regular basis.
About Mike Higgins
Mike Higgins, Jr., is a partner in the firm of Mike Higgins & Associates (MHA). His consultants work with clients in the financial services industry. His primary areas of focus are performance management, performance-based compensation, board education and strategic planning to maximize member value. Mike is also a Filene Applied Research Advisor. He has presented at numerous Filene events and participated in the inaugural Center for Performance and Operational Excellence Research Colloquium at Stanford University.
Since 1998, Mike has worked with over 300 community-sized credit unions and banks. Mike has presented his contemporary approach to managing performance to numerous state and national associations. He coauthored the book Performance Compensation for Stakeholders: 14 Prerequisites for Success.
About America’s Credit Union Museum
Housed in the building where our country’s first credit union was born, America’s Credit Union Museum offers a one-of-a-kind interactive experience that brings to life a vision as relevant today as it was 100 years ago.
The Museum is more than a collection of artifacts and documents. It’s the soul of an unwavering national movement of people helping people. America’s Credit Union Museum honors our shared history, documents today’s achievements, helps credit unions prepare for tomorrow’s challenges, and inspires our industry’s collective future.
Please email Seth McClellan at smcclellan@insurancetrust.us for registration information.