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Why Economic Upheaval Is Putting CUs In Driver's Seat For Auto Loans

As we all know too well, credit union members and consumers are struggling on several fronts. A tight economy and high fuel costs are making some people desperate for a deal on a more fuel-efficient car. And desperation can make for vulnerable consumers.

Compounding this is the reality that auto dealers are in a pickle: the industry is in a slump, buyers are rethinking their car options as never before, and new-vehicle department net profit has been below break-even for the past two years while new car sales are dropping 3% per year on average, according to the National Automobile Dealers Association (NADA).

Why should credit unions care? Because they-like other affinity groups, loosely defined as trusted brands and group buying powerhouses ranging from AAA and Costco to insurance providers, HR and benefits firms and even special interest organizations - are in a position to help both parties, placing credit unions among the new power players in auto retailing.

The opening for credit unions is simply the lack of trust surrounding the new car sales model. The traditional auto sales transaction is often defined by an obscure pricing, negotiating and financing matrix and is frequently fraught with buyer suspicion, which often creates an adversarial relationship. In fact, 68% of consumers actually dread the negotiation experience, according to J.D. Power and Associates-and that figure is probably conservative.

Meanwhile, car dealers are confronting the need to increase volume and reduce costs, and some have begun to embrace upfront pricing as a way to accomplish that. Upfront pricing represents a tremendous transfer of leverage from dealer to buyer. It places consumers in charge because with it, they have the power to walk away-and then vote with their feet (and their vehicles) by flocking to the dealers who practice it. Savvy dealers, in turn, are recognizing how important this shift can be to their very survival.

That is the role affinity groups such as credit unions now play in the automotive retailing process-they can tell dealers who is in market, and therefore find themselves with the power to trigger an industry-wide tipping point toward the rapid adoption of upfront pricing.

This is possible because of the power trusted brands now have to direct and concentrate consumer buying behavior, a particularly significant market dynamic considering that automotive retailers are a highly fragmented group. Beyond cars, brands increasingly matter and trust marks wield enormous power.

Collectively, credit unions are in a position to wield group buying power to lock in great deals for their members, enabling consumers to buy a car through an organization they already trust. Credit Unions, in short, have the power to enforce transparency and upfront pricing because they can.

As a result of these developments, the auto transaction is migrating to a business model that enables consumers to buy cars with the assistance of trusted affinity groups playing an important buffering role. This new model results in:

* Leverage power to enforce good behavior and drive great pricing.

* Better prices and more satisfying experiences for buyers.

* A new way for the affinity group to cement the relationship with its members, add value to membership and market its own services.

* Higher volume and close rates, and "trust by association" for dealers.

Yet this dynamic works only if credit unions can truly meet the expectations that their members have of them; everything is premised on the credit union delivering value. To best serve members, affinity groups need to align with dealers who fundamentally believe in transparency as a way to retail - with upfront pricing and the resulting better customer experience being a concrete manifestation of this commitment. Only then can buyers and sellers be connected through exclusive affinity group relationships, a signal development in the ongoing push to increase the efficiency - and profitability - of dealer operations.

Such a model also lets credit unions help dealers do the two things they must do to survive -increase volume and decrease costs at the dealership-by connecting them with CU members in the market for a car loan. These leads are extremely valuable to dealers, and are much more qualified than leads dealers would purchase from online car-buying sites that don't filter for in-market customers.

The benefits of such a model to CUs are manifold-credit unions can indirectly drive great, upfront prices at participating dealers, resulting a more satisfying experience for their members, while also adding value to membership in marketing their own services.

In a down market, when vulnerable members are keenly seeking deals and credit unions themselves are working overtime to keep them protected and satisfied with new services, now is the time to take the driver's seat and ensure a win-win for all parties. This new trend gives CUs a competitive advantage in the marketplace against other financial institutions. Members legitimately feel closer to their credit union than bank customers typically feel toward their institution. The ability to expand member services and extend the given credit union brand is a smart way to reinforce that feeling.

Scott Painter is founder and CEO of Zag. He can be reached at www.zag.com. (c) 2008 Credit Union Journal and SourceMedia, Inc. All Rights Reserved. http://www.cujournal.com/ http://www.sourcemedia.com/

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