Many members of Georgia’s credit unions appear to be steering away from purchasing and financing new vehicles, instead choosing to take out loans to buy used cars.
According to the Credit Union National Association (CUNA), a national trade association for state- and federally chartered credit unions, while lending for new-auto sales is still growing steadily among Georgia’s credit unions, the actual pace of that growth has been slowing over the past several years.
In 2014, the state’s credit unions reported a dramatic, 30.8 percent increase in the dollar volume of new auto loans over the previous year, according to CUNA. But since then, that annual rate of growth has slowed markedly, with new-auto loans funded by Georgia credit unions increasing by only 6.7 percent in 2018.
Year-over-year growth of used-auto loan volume by Georgia credit unions, meanwhile, hit the 14.2 percent mark in 2014. That figure gradually made its way down to 7.8 percent in 2017; then, in 2018, it jumped to 9.4 percent — topping growth in new auto lending that year, and marking the first time used-auto lending growth has outpaced new auto-loan growth at the state’s credit unions in the past six years.
These numbers reflect a number of factors at work in the auto-sales marketplace that are currently working to the benefit of used automobiles – at the expense of new cars.
“Not only do new cars cost more to purchase and finance than in the past, they’re also built better and are lasting longer,” said Mike Mercer, president and CEO of Georgia Credit Union Affiliates, the trade organization for credit unions in the state. As a result, “Consumers just don’t have the incentive to purchase a new car that they once did,” he said.
At the same time, many consumers are getting smarter about the economics of car-buying.
“They listen to [financial self-help authors/radio hosts] Clark Howard or Dave Ramsey telling them that it doesn’t make sense to buy a new car, and that they should instead buy a used one,” said Keith Pritchard, CEO of United Methodist Connectional Federal Credit Union. “And they increasingly better understand things like when you buy a brand-new car for, say, $20,000, the minute you drive it off the lot it's only worth $17,000,” he adds.
Indeed, “With prices where they are now, and the premise that a new car loses a good bit of value relatively quickly after being driven off the lot, we’re seeing members buying used,” said Allen Upchurch, CEO of Credit Union of Atlanta, adding “We look for that trend to continue into the foreseeable future.”
Nationwide and in Georgia, thanks to high vehicle prices and increased financing costs, new vehicle sales have reached levels that are hard to sustain, according to The University of Georgia economist Jeff Humphreys, a situation resulting in what he describes as “modest declines in new vehicle sales, and slightly higher – or at worst, flat – sales of used vehicles. As a result, “Although new and used vehicle sales cycles often move in tandem, it looks like new vehicle sales have peaked for this cycle, while sales of used vehicles are still rising.”
That said, though, “Strong economic conditions, and especially more jobs and growth in household disposable personal income, will prevent new car sales from declining too much,” Humphreys notes. For the rest of 2019, according to Humphreys, factors that are favoring increased volume of used-vehicle sales include the large quantity of nearly-new vehicles – many of them popular SUVs and crossover models – coming off leases, which will put significant downward pressure on used vehicle prices.
As a result, he said, “The price gap between new and used vehicles will widen, making used vehicles the more attractive option for many households.”
