Think Beyond the Rate

What will lenders do when people stop owning cars?

This jelly-bean-looking EV is already signing people up for a waitlist while it goes through testing. Because electric motors and batteries take up less space, the inside of a Canoo is “as big as a Suburban, with a smaller footprint than a Prius.” The interior has sofa-like seating, and “enough room to easily fit a surfboard or an Ikea cabinet.” It can drive 250 miles on one charge, plus the battery can attain an 80% charge in only a half hour.

But the big innovation here isn’t really the car itself; it’s in the paperwork – or lack thereof.

Instead of selling or leasing, Canoo believes people will pay a monthly subscription fee for personal transportation. That fee includes 24/7 access, maintenance, registration, charging, and access to insurance.

The real disruption is that selling subscriptions instead of cars also enables Canoo to skip dealerships. AND lenders.

Younger people just don’t care as much about cars

The American dream doesn’t automatically include a shiny new car anymore. Of course, car subscriptions won’t be for everybody. Lots of people will want and need to own or lease for many years to come.

There are still plenty of gearheads and road trips, and there always will be, but it’s also become common for young adults these days to delay getting their driver’s licenses, skip owning a car if possible, or at least put off the hassle as long as they can. They’d rather spend their money, time, and attention on other things.

Lots of people, especially more and more younger people, see cars and traditional dealerships as a pain in the neck, and would be happy to sign up for something more convenient.

Carvana is seeing massive growth because they’ve removed almost all the friction (and the giant car vending machines are cool). You can examine, select, and buy a thoroughly inspected used car online, and apply for financing with about ten questions.

All of which makes Carvana a growing threat to credit union auto lending. After all, how short and fast is your online loan app? Speed and ease matter more than ever. And price and rate matter less.

Time to rethink the car loan

At most credit unions, car loans are your boring bread and butter. How will you keep your loaf from shrinking over the next ten years? Fortunately, there’s still lots of room to compete if you’re willing to think beyond the rate.

For example, what if you could take away the hassle with an “Everything” car loan? Instead of dealing with car payments, maintenance and repair expenses, tires, insurance, registration, etc., what if the CU or a CUSO did the legwork and bundled it all up into one worry-free payment? That way, the member could drive what they want and still get the convenience of a subscription.

Or what if you offered loans that worked for the “gig” economy – people who are driving for ride sharing, car sharing, delivery services, or who rent out their cars when they’re not using them? Instead of sending these people away, work with them.

And if you haven’t done so already, it’s past time to set up EV-friendly car financing that factors in lower energy and maintenance costs and includes funding for installing a charger.

These are just a few examples, of course. The market for car financing is evolving fast, and credit union car loans will need to evolve as well.

Brian Wringer

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