Commercial Real Estate Loans can Help Credit Unions Make Up the Difference in Auto Loan Volumes
Credit unions’ portfolios have historically held a large percentage of auto loans for both new and used vehicles. However, the volume of auto loans has significantly shifted due to the semiconductor chip shortage—a technological scarcity limiting the production of motor vehicles, thus the volume at which consumers can purchase them. In fact, the CEO of chip maker STMicroelectronics, Jean-Marc Chery, said this unprecedented shortage will likely last at least two years.
“Things will improve in 2022 gradually,” Chery said in a statement, “we will return to a normal situation…[but] not before the first half of 2023.”
Although other optimistic analysts believe the shortages will be resolved by the end of 2021, other sources don’t think stabilization is possible until the second half of 2022. Forecasters have estimated 5 million fewer cars will be made this year, resulting in continued soaring prices and limited inventory. Like consumers, this has already hit credit unions in a massive way and will continue to do so into the foreseeable future.
According to the Credit Union National Association, used auto loans account for approximately 20.4% of a credit union’s overall portfolio, while new auto loans make up about 11%—totaling 31.4% of the holdings. That’s a hefty portion of a credit unions’ books that will be impacted by the microchip and vehicle shortage.
To reach year-end loan goals and make up for the potential loss, credit unions must pivot to other loan products as substitutes—an effort Extensia Financial can help accomplish.
Commercial real estate (CRE) loans are the perfect alternative to smaller auto loans because they offer various valuable benefits, including:
- They have higher yields.
- They are Environmental, Social and Governance (ESG)-focused.
- They are more secure.
Because CREs are larger values than your average auto loan, credit unions can reduce operating costs by processing fewer loans to achieve the same amount of sales dollars. For instance, if a credit union typically provides 10 auto loans at $50,000 each, that can be replaced with one CRE of $500,000, leaving less processing work and resulting in the same assets used.
According to an article in the Credit Union Times, some credit unions have already tried to increase their share of commercial real estate loans—but not by much. Eight hundred thirty-nine of the nation’s credit unions granted $7.4 billion in commercial real estate loans in the first quarter of 2021, up just 15.1% from 2020. Despite this slight increase, credit unions still only back 4.1% of the nation’s CREs.
Extensia Financial, an experienced commercial real estate lender, highly recommends credit unions dive deeper into the lucrative CRE market to make up for the loss and scarcity of auto loans. After all, if the auto industry doesn’t stabilize for up to two more years, change won’t be an option. It’ll be a necessity. Let our team at Extensia help you push past the shortage and come out even stronger. Contact us any time to learn more.
About Extensia Financial
Established in 1998 and headquartered in Simi Valley, CA, Extensia Financial offers competitive commercial real estate loans. We partner with credit unions and connect them to investors across the United States. Additionally, we uniquely support and guide our partners through the entire commercial real estate loan process. Extensia Financial is a proud member of the AVANA Family of Companies.