Integrated Lending Technologies L.L.C.

According to CUNA Mutual Group’s Credit Union Trends Report for May 2010, “Through the first three months of 2010, vehicle loans held by CUs declined by 2.6%. Since the expiration of ‘cash for clunkers’, month-only declines have averaged 0.8%. Over the past year, CU vehicle loans have declined 3.7%”.

Over the last very difficult year credit unions using the DILLS™ system have fared better than the national average, but hardly anyone’s numbers are where they were a year ago. As we move into the summer months when demand is usually the highest, everyone seems to be struggling to meet lending goals or falling short of expectations.

What’s the problem?  We all know that demand for new car loans dropped dramatically last September when the “Cash for Clunkers” program ended. The captive finance companies responded to that development by offering a variety of subsidized loan products to spur on sales. Sometimes those subsidized deals aren’t all that great for the consumer, but many credit union members are lured away by them in spite of our best efforts. Then, as car sales started to pick up again, the big banks and finance companies came back into the market with rates that seem ridiculously low, and they’re aggressive with their dealer compensation plans as well.

What can we do?  There’s no single, easy solution, but here are some suggestions:

1. Find out as much as you can about your major competitors for loans at the dealership. What are their rates, plans and commissions? Ask any friendly F&I person. They’ll be happy to tell you. Some of them may exaggerate a little, but they’re still a good resource.
2. Try to be in your competition’s ballpark for at least some loans. You need not be the “low cost leader” in any category, but you should be competitive. Some of those “too good to be true” rates are reserved for super-credits, and you can still compete for loans to people with average to good credit.
3. Visit the dealer. Let him know you’re still in the market and would like some of his business.
4. Stay in the game. Dealers appreciate consistency. They will come to distrust lenders who are here one day, gone the next.
5. Service and personal relationships will make the difference with dealers. Set yourself apart from the competition by being a leader in non-financial factors like decision turnaround, funding turnaround, better technology and relationship management.
6. Advertise and promote your indirect lending program. Let your members know they can get a loan from your credit union at the dealership. Tell them to insist that the dealer arrange for a loan from their own credit union.

I just read Brett Christensen’s comments in the article titled “Is Indirect Lending a Romp in the Devil’s Playground” in the April 7 edition of Credit Union Times. In the article he’s quoted as saying, “I tried my hardest … to keep an open mind about indirect lending, and my mind isn’t open anymore”. I couldn’t have said it better myself. Any credit union executive who took the time to read his railings against indirect lending should be grossly offended. His basic premise appears to be that credit union folks are too stupid to be successful at indirect. According to him, loan officers are so anxious to look good that they will buy almost anything. He must also think that managers who are supposed to be monitoring the programs are just incompetent or that they like the growth so much that they ignore bad underwriting practices.
He was right about one thing. Growth is what motivates credit unions to do indirect lending. People buy cars and get financing at dealerships. If a credit union expects to increase, or even maintain, its auto loan portfolio, it must have an indirect lending program. And, if that program is well managed, it will be successful, and the credit union members will get the service they expect from their lending institution.

Most lenders doing indirect lending do business with at least some independent dealers. If you develop a specific and detailed policy and follow it, doing business with independents makes good sense. The most common concerns are:

• Does the dealer have the financial strength to weather economic downturns?
• What recourse do I have if I don’t get the title?
• Are the dealership employees properly trained?
• Will I get complete and accurate loan documents?

If you do business only with franchise dealers, consider the following:

• Having a franchise from a manufacturer does not guaranty a dealer’s financial strength or that the dealer will stay in business.
• Independent dealers vary dramatically in size and financial strength just like franchise dealers.
• Some independents have excellent technological infrastructure and well trained management and finance professionals. Some definitely do not.
• New developments can practically eliminate the risks of not getting a perfected lien from an independent dealer.

If your indirect program isn’t available in independent dealerships, it isn’t available to buyers of almost half of all used vehicles. What do you think? Should you be doing business with independents? Are the problems or risks exaggerated? Have you done enough research on ways to reduce the risks?

The percentage of automobile and other equipment loans booked through the indirect lending process continues to increase, and the number of lenders doing indirect continues to grow.  More people than ever are looking for information about it. We here at Integrated Lending Technologies are providing this weblog as a forum for anyone interested to share his or her thoughts and ideas about indirect lending.  We’ll regularly post our observations about issues and developments related to indirect lending and open it up for discussion. We won’t use it to tout our own products, but we may mention some technological features that we develop if we think they’ll be of interest generally. Anyone can log in and post whatever they like. Our goal is to get people talking and sharing. Let others know what works for you or what has caused you problems. Ask questions. Someone else will have the answer. Share opinions. And we promise to not let this blog get stale. If we think things are moving too slowly, we’ll spice it up a little with some of our own opinions, and we’ve got some pretty strong ones. So, check back often.