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U.S. Credit Unions Grabbing Larger Share Of Auto-Lending Market

DETROIT - (Dow Jones) - Credit unions are grabbing a larger share of the auto- lending market, a sign that their move to win over consumers locked out of traditional vehicle loans is taking hold.

Around 25% of auto loans, not including leases, came from credit unions in February, up from 15% a year earlier, according to AutoCount data from Experian PLC's (EXPGY)Experian Automotive.

The shift is happening as the global credit crunch has led auto maker finance arms, particularly GMAC LLC and Chrysler Financial, to scale back lending to all but the most credit-worthy consumers.

"It stands to reason that the auto companies are going to see credit unions and other lenders more as allies rather than competitors," said David Adams, Michigan Credit Union League president and chief executive. "We're looking at a transformative shift in the way new cars and trucks are financed."

Only credit unions saw the number of existing auto loans increase in the last year, according to Experian. Open auto loans from credit unions increased by 5% in last year's fourth quarter compared to a year earlier, while every other type of lender saw their numbers fall.

General Motors Corp. (GM) and Chrysler LLC, facing the biggest crackdown from finance arms in which neither company has full control, have promoted programs to steer customers toward credit unions for loans. GMAC and Chrysler Financial are both owned by private equity firm Cerberus Capital Management LP, which also owns Chrysler.

As part of a deal that began late last year, GM and Chrysler began offering discounts to credit-union members in exchange for credit unions making more cash available for auto loans. Around 57,000 people bought a new car or truck in January and February through the program, Adams said.

He said the credit union group is in talks with Ford Motor Co. (F) to join the program, though the auto maker has previously said it declined because its finance arm was in relative good health.

While the auto makers benefit from anything that makes credit available to prospective car buyers, the shift isn't all good news for the companies or their dealers.

Captive lenders' primary purpose is to help auto companies sell cars and trucks, so the companies traditionally go to greater lengths to woo customers with attractive lease deals and ultra low-rate financing, helping many consumers buy pricier vehicles than they could otherwise afford.

Interest rates offered by credit unions, banks and other outside lenders are typically higher, so auto makers must rely more on profit-eroding discounts to make the vehicles affordable.

But opening up credit lines is a must for GM and Chrysler as they struggle to stay afloat on government loans. The auto makers have said the pullback in lending by GMAC and Chrysler Financial is a major factor in double digit percentage sales declines since the credit crisis took hold last fall.

Meantime, highly regulated credit unions, typically more focused on used vehicle lending and other consumer loans, have avoided much of the trouble plaguing the lending industry.

"If and when the captive lenders get healthy, that may make it more difficult for credit unions to maintain that share," Adams said. "But that future is a big unknown."

-By Sharon Terlep, Dow Jones Newswires; 248-204-5532; sharon.terlep@ dowjones.com.