MIAMI-To battle the long arm of dealer financing, at least one CU is meeting members at the dealership to make sure the F&I team doesn't steal the loan.
It's not often it has to do so, but Smart Financial CU will do just that, stressing that it takes a great deal of hand-holding and member education to go up against manufacturer incentives and dealer tactics.
Meanwhile, in addition to SFCU, several other credit unions at the CUNA Lending Council Conference shared with Credit Union Journal auto lending strategies that are working for them.
Smart Financial's Chief Lending Officer, Larry Seidl, explained during the 2012 CUNA Lending Council Conference that if it takes showing up at the dealership, the credit union is glad to do it to make sure the preapproved member actually closes with the credit union. It's part of SFCU's website strategy that Seidl says differs from most other credit union auto-buying services.
"Many of the car-buying services send the member to the dealer without knowing exactly what is happening," explained Seidl. "A while ago I did a review of our preapproved deals, and 85% of those loans were being stolen by the dealer."
Smart Financial's car-buying program finds the car the member is looking for, gets dealer bids for the member, and then arranges the purchase and sends the member on with check in hand made out to the dealership. The credit union also works with the dealer to streamline the closing of the loan with the credit union, and will even send a representative along if necessary.
"When the member gets to the dealership they are generally driving off the lot with their new car in 15 to 30 minutes," said Seidl.
Seidl contends that focusing more attention on the member throughout the car shopping and purchasing process, making it faster and easier, often is more appealing than a lowball rate. "We think what we are doing is a step above other lenders and has really differentiated the credit union. This year we've seen $12 to $15 million in auto loan growth that is not indirect."
Loans Up 40%
UW Credit Union, Madison, Wis., has increased auto lending by 40% year over year, coming off a 2011 when auto loans grew by 30% annually. Chief Credit Officer Mike Long attributes the results to an auto loan recapture program that relies on his team being able to quickly pinpoint members who have taken a car loan elsewhere and then talk succinctly about the real dollar benefits of bringing the loan over to UW.
"Every two to three months we get a list from Transunion of members who took a car loan outside the credit union," explained Long, a member of the CUNA Lending Council. Thanks to a software program UW has provided its outbound sales team, the group quickly dissects the competitive loan and comes up with payment comparisons and overall cost savings by switching to the credit union.
"When our team contacts the member they immediately discuss how much the member can save. Essentially, they say, 'We know you just got a new car loan, we can save you X amount of money.' Who wouldn't listen to that?"
Number One Lender In Market
The $2.3-billion Members 1st FCU, Mechanicsburg, Penn., is the No. 1 auto lender in central Pennsylvania, mainly because it has a great relationship with dealers, according to Fred Ryerse, SVP of lending.
"We are competitive on price, but it's really more than that. It's speed in approval-answers in 15 minutes or less-and closing, as well as being consistent in lending standards. Dealers know what I will approve and what I will not, and it does not change. They prefer consistency."
Reduced Rates Pay Off
Dropping auto rates to 1.99% has meant big business for the $1.25-billion Local Government FCU, Raleigh, N.C. Bentley Hatcher, SVP of lending, said the move-good through the end of the year-has driven tremendous auto loan volume.
"We have more than doubled our auto loan portfolio size since cutting our rates earlier this year," Hatcher said. "Credit quality has remained strong. A lot of our members were getting preapproved, going to the dealers and then taking their financing. We were losing a lot of our high-quality borrowers, so we decided to do something about it."
The growth even surprised the credit union, especially the new activity. "The monthly volume has been consistent-$1.5 to $2 million," said Hatcher.
Pricing Matrix Pays Off
In Colorado Springs, Colo., the $3.7-billion Ent FCU relies on a pricing matrix to keep the CU competitive in auto lending, and also margins where they need to be.
"I am not getting involved in the race to zero," said SVP Bill Vogeney, who shared that auto loan growth is strong at Ent, including a 70%-30% mix of new-over-used activity this year. "When I see a credit union doing auto loans for 36 months for .99%, and 60 months at 1.25% to 1.50%, I crunch the numbers and say there is no way to make enough through more volume."
Vogeney, also CUNA Lending Council vice chair, contends that credit unions have to always crunch the data before reacting to market pressure to drop rates. Vogeney's pricing model inputs the rate, market assumptions and market share, projected volume, and loan costs, including paying dealer incentives. Among many things, the model tells Vogeney how much volume Ent will need to make up for a certain drop in rate on a particular book of auto loan business.
It also tells him when it may be time to cut rates. "Right now margins are so thin. My margin pricing model tells me, for example, my market share has to drop maybe four to five percentage points before I lower my rates by 25 basis points. You don't just react to market pressure, you have to run the numbers."