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.
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Counter Point to CU Times article1: Is Indirect Lending a Romp in the Devils Playground? April 7, 2010
Calling Indirect lending a “failed model” is like calling major league baseball a failed league when your favorite team is in last place. The truth is, lack of knowledge as well as poor planning and execution are to blame. Having been on both sides of the equation, I can tell you this; the will to win is not good enough. Wanting to build membership and put quality loans with reasonable returns on the books is a good thing; however, understanding the auto industry is paramount in order to do it successfully.
Let’s be clear, referring members to a local dealership where credit union financing is available is considered indirect lending. But using the same train of thought, placing 9 people on a baseball field is considered a baseball team. Indirect lending is not for all credit unions. However, asset size, field of membership, and competitive landscape are the prerequisites to getting involved. Once a credit union understands the true potential of their market based on many factors, then the questions of; are we capable, able, and willing must be answered. Unfortunately only the “willing” part is answered in many cases.
It is true that credit unions can and continue to be blinded by growth and short sited success. However, that is poor execution and not a failure of indirect lending as a business model. It is this lack of execution that turns what is a wonderful opportunity into what can be considered the “Devils Playground.” Most members are financing and leasing vehicles at dealerships. The greatest opportunity for new member growth is at a local auto dealership. As a matter of fact, there is no better way to build new members than indirect auto lending. Therefore, it is worth every bit of energy for credit unions to participate and take advantage of this extraordinary opportunity. The key is to do it right. Not alone.