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.
We agree with the principles put forth by your article and offer the following “case study” as proof points.
We launched a de novo indirect auto lending program in December 2009. Our success is derived from two major elements: emphasis on used auto loans (vs. new) and “service” (please don’t laugh).
We originate more used auto loans through the design of the program itself. We acknowledged upfront that long term there is no way to compete with the captive finance companies. Underwriting, LTV’s, cutoff scores, terms, rate-tiers, etc., all play a part to give us an 80/20 mix of used/new auto loans.
Our service gets delivered through our dealer rep and our underwriter — they have combined experience of 20+ years. Our rep hand-selected 10 dealers within the local market and calls on them frequently — delivering loan files, providing supplies and running interference on loan “stips” and “problem” loans. The dealers also have easy access to our underwriter in the event of a rehash or a question. Our turnaround time for loan decisions is currently 31 minutes — good, but we are working to reduce this further to 15 minutes.
So far, our loan volume has exceeded expectations; average FICO has been consistent at 680-690; average yields are much higher than anticipated. In addition, we have not had to pay the highest reserve to the dealers.
Knock on wood — so far, so good.