Some rules are made to be broken.
Case in point: people buy cars in the summer, so credit unions should promote car loans in the summer.
Certainly there is some level of seasonality in automobile sales. In colder climes, most consumers do not want to trudge from dealership to dealership in sub-freezing temperatures, nor do they want to perform a test drive in several inches of snow (though some would argue that is the best time for a test drive).
But with people now performing a significant portion of their initial car-buying legwork online, and of course the dearth of snow in, say, Florida or most of the South, is it time to expand promotional efforts to the other nine months of the year?
Marci Francisco, VP of automotive marketing and business development for Ontario, Calif.-based CU Direct, told Credit Union Journal some CUs are recognizing the need to think outside the summer box.
"It is a pretty interesting topic of conversation right now," she said. "There has, indeed, been a huge push in the summer, but summer is not the only car-buying season that is important."
While the weather definitely can be a factor in some areas, Francisco acknowledged, she said there are other times that could be emphasized more. "March and April are great months for sales, particularly along the West Coast, so credit unions in those areas should consider promotions."
At Credit Union Journal's request, CU Direct researched monthly, quarterly and seasonal auto buying trends. In the last five years, according to the numbers, some of the strongest months for car sales are March, May and December — so certainly no reason to limit promos to summer.
Jack Kelly, VP, consultant for Lending Solutions Consulting, Elgin, Ill., said credit unions are "leaving tons of business on the table" with their current strategies.
"We must, must, must be proactive, not wait for the business to come to us," he declared. "Don't say this is a slow month, go out to the dealership."
Kelly cited the example of a CU in Nebraska that opened a satellite branch in a high-end used car dealership. The dealer sells a good number of pickup trucks and SUVs, so there is a high average sale. He said the CU averages four to six deals every Saturday, plus other deals during the week, thanks to a great relationship with the dealer.
"There are places like that in every town. Get out of your four walls and get out there," he advised. "Yes we are warm and fuzzy as a credit union, but it is still a business. The banks do bad things, so we need to make the loans."
Holiday Cheer = Holiday Car Loans
Both Kelly and Francisco said CUs should be taking advantage of what is, in essence, free advertising from auto manufacturers every December.
"When does the dealer need to move cars? Before the new models come in, and at Christmas time, and we know it is Christmas when we see the Lexus commercial with a big red bow on the top," said Kelly, noting other manufacturers have jumped in with their own holiday television ads. "I would like to see credit unions running promotions in October and November for December. Another good idea is promotions in January and February around the tax return."
Francisco said July and August tend to produce more sales due to close of the summer season and availability of new products, but added sales can be strong into the fall.
"Credit unions should be putting together promotions for November and December," she advised. "There are new products on the market at that time and there is enthusiasm among consumers. If credit unions could get slightly ahead of that with holiday loan promotions and marketing, they could get the jump on the manufacturers."
According to Francisco, people use the Internet to do research on vehicles — up to 14 weeks of online research from the "trigger event."
"Consumers do preparation in October and November for auto purchases in December," Francisco stated. "They spend an enormous amount of time gathering information. So credit unions should be in front of their members during October and November."
'Real' Impact of the Internet
The Internet is not changing the seasonality of car buying, Francisco reasoned, but she said it is changing consumer expectations of what a car-buying experience should be when they get to the dealership.
"Consumers expect information to be transparent and easy to find. At the dealer, they expect a fast, easy experience," she said. "They expect to pull out their smartphones and get information on the spot. They also cross-shop like crazy — they will shop another manufacturer while at another's dealership. Because of this, they are exposed to a lot of offers. When marketing auto loans and auto-shopping platforms, always have a path on the front page of the credit union website."
Kelly said the rise of online customization has had an enormous impact on the car-buying experience — as he experienced personally.
"The Internet definitely is playing a much bigger role. Some manufacturer websites let people build their own car. I did it myself, and it took four months, but then I was in and out of the dealership in 1 hour and 45 minutes. Consumers can do that because they can build it down to the paint."
CUs should do a better job of educating their members as to the availability of these new processes, he said. "No one has to spend six hours in the dealership."
The traditional October launch for the new model year is "dead," Kelly insisted. He noted in late July there already are some 2016 models showing up at dealerships.
"It is a 12-months-out-of-the-year business, and credit unions need to look at it that way," he counseled."
Shortly before the interview for this Special Report, Kelly had consulted with a $1 billion CU in Utah: 66% of its portfolio was in auto loans.
"That is huge," he assessed. "Other credit unions have big concentrations, so why should they only promote auto loans four times a year? Auto dealers are moving product every day, credit unions need to be more aggressive going after that business."
Kelly cringes when CUs tell him, "January is a slow month, so we don't do anything." His response: "Don't tell me about your good months, tell me about your bad months and we will do some creative ideas to get members coming in to get loans."
Beating 0% Financing
Francisco acknowledged there are some "aggressive" financing offers from the captives out in the marketplace these days, some 0%, some 0.9%. However, she said, credit union auto loan rates are "very compelling."
"We just need to get credit union auto loan offers in front of consumers early," she advised. "Pre-approvals still work, but it is important to do more proactive marketing of auto loans online."
Consumers focus more on the car than the loan, Francisco continued. She said CUs need to have a "dynamic strategy" that includes the rate and the excitement of buying a car. "Put that information front-and-center on the web page. When members log in to home banking, let them see the credit union has an auto-shopping service and a great rate."
Kelly said CUs need to recognize the importance of the payment. He said members want payments of no more than $350 per month, so with prices going up the only way to do that is to stretch out the terms. Formerly standard terms of 48 months or 60 months are gone, he said.
"The business is at 84 to 96 months, and 108 is coming," he predicted.
As for how to beat 0% from the manufacturer, Kelly said the best response is to have a better GAAP program, and/or have a better credit, life and disability insurance.
"Also, put a credit card in their hands at 7.9% or 8.9%. If you have all that, you have a chance to say the credit union is a better option overall," he said. "We have more things to bring to the table beyond a low interest rate."
The topic of the 1.99% rate is a "sensitive one," Kelly noted, but at least the CU gets to pull the applicant's credit report.
"We always talk about building a lifetime relationship, but the average credit union only has three products with the average member," he said. "Credit unions take and fill orders, rather than looking for interviews. The car is a 72-month loan to make income, but if I get a credit card with a 10.99% rate in their hands, that is a loan that never ends."
Kelly quickly added he is not "pushing products for the sake of pushing products," stating the product still has to be in the members' best interests. "But I know the credit union credit card is the best."
Francisco expects automobile sales volumes will "probably be strong" for the next two or three years, until 2018. Therefore, she said, "Now is the time for credit unions to be as proactive as they can and get as much volume as they can."
"Consumers trust our brand more than the manufacturers, so we need to take advantage," she said. "There still is pent up demand from the recession, plus strong consumer confidence. As loan terms have lengthened in recent years — out to 72-month or even 84-month contracts — some analysts expect this to catch up in approximately 2018."
Kelly said the answer to the question: should CUs focus on auto lending promotions year around is easy to answer.
"Absolutely, positively, because the opportunities to grow relationships are there," he said.
Kelly noted a 25-year-old will have several car loans, and then a mortgage and a credit card. "That could be a million-dollar-member. But if all the credit union does is one car loan, that is not a million-dollar-member. Be lenders, not order takers."