Few would claim that they could have predicted the impact a technology company (Uber) would have on credit union balance sheets. If you envisioned this future – well played! For the rest of us, it was a surprise as Uber took off and destroyed value in taxicab medallions, a hit credit unions took on the chin. The biggest one, Melrose Credit Union – a $1.7B (yes billion) dollar credit union, was conserved in February of 2017 because of the valuation problems with their taxicab medallion loans.
Recently, I sat down with some of the credit union industries brightest to have a mastermind session and explore all things technology and credit union – Two of my favorite subjects! During the meeting, we began discussing autonomous vehicles. As a supreme hater of traffic and the father of twin 6 year-olds and a 7-year-old, I cannot wait to have a car that drives itself. I think just like smart phones changed us overnight, mainstream self-driving cars will prove rapidly adopted. The amount of productive time we will gain back is potentially huge. Plus, it affords the added bonus of relieving any worry of my kids driving at the young age of 16. I feel justified and compelled to make the purchase immediately for just these two reasons! It’s not a question of if it will happen, it’s a question of when.
There’s a good chance my children will never drive. If they don’t, will they care about car ownership? Or, will we see a massive shift away from car ownership to shared ride options? In fact, we are already seeing a decrease in car ownership. Millennials buy way fewer cars than generations in the past according to a study by the Federal Reserve, and we should pay attention to this trend.
I know it is hard to imagine that a rite of passage as American as owning a car would change, but I believe it will for the following reasons:
- I personally hate owning a car and dealing with registration, maintenance, fuel, etc. I would rather clean my entire house.
- I hate traffic more than any of the other burdens of owning a car, and our roads are more congested than ever.
- I already don’t rent cars anymore because of Uber, and if the cost of taking rides drops further, I would happily give up my $1000 a month car addiction (cost, maintenance, fuel, insurance) and spend $500 a month on Ubers (or similar services).
So, if self-driving cars take off (which they will), what happens to credit union balance sheets? Of course, there are lots of other impacts like those this article from CUNA discusses.
At this moment in time, most credit unions have an auto loan portfolio that makes up 30-40% of their loan portfolio. But what if that suddenly dropped to 25%? Would your credit union stomach the change? Could you invest the funds and earn a better yield? The short answer is maybe. I don’t think auto loans are great financial cash cows for most credit unions, but even if you disagree, it’s time to start thinking about how to prepare your credit union for the coming change and forming some deliberate strategies now to reallocate labor and assets to other yielding assets as consumer behavior shifts.
This article was originally published on CU Insight. Click here to read.