New auto loans increased 15.6 percent annually, while used auto loans grew by 13.2 percent. And new and used auto loans together accounted for 44.1 percent of growth in total credit union loan portfolios over the previous 12 months.
While a successful auto lending program can contribute significantly to a credit union’s service model and profitability, the competition in this space can be fierce – especially during peak car buying seasons.
“A projected 17.2 million autos will be sold in the U.S. in 2017, representing a huge opportunity for credit unions,” said John Caddell, Credit and Lending Service Manager for CO-OP Member Center, a wholly-owned subsidiary of CO-OP Financial Services. “In order to capture this business, credit unions need to have the right strategies and resources in place in advance of the buying seasons.”
Investing Now for Future Returns
According to Caddell, there are two major time periods each year in which the majority of automobiles are purchased nationwide: from April through August, and again in November and December. With Spring Break right around the corner, Caddell encourages credit unions to start preparing now.
“Make sure members are aware of your auto lending program and that they understand why you will offer them a better deal,” he said. “Credit unions have an advantage in that they are typically a lot more competitive with rates than the banks, especially for near-prime and non-prime paper.”
While making members aware of their credit union’s lending program is important, Caddell emphasizes that members represent only one half of the equation.
The Importance of Dealer Outreach
“Ideally, credit unions should have a dealer representative covering the surrounding area to ensure that their lending programs are considered whenever members finance through a dealer,” he said. “Consumers typically want to drive the car off the lot, and will frequently defer to the dealer for the quickest financing options.”
Toward that end, Caddell advises credit unions to pre-approve members to make transactions easy and seamless.
“This is a tremendous service to provide, and one that you should market throughout the year,” he said. “If a member is pre-approved for up to $40,000, for example, he or she has tremendous bargaining power to focus on price, and not on terms and rates.”
While pre-approved loans benefit members and credit unions alike, Caddell affirms that most auto financing is orchestrated in the showroom at the time of purchase.
“Consider also that most of these transactions occur on nights and weekends when your credit union is likely closed,” he said. “In order to be selected for financing, credit unions need to be highly responsive whenever an application is submitted. Contracting with an outside resource such as CO-OP Member Center can help you provide the after-hours underwriting and processing your members require.”
To maintain 24/7 availability, Caddell also recommends providing online and mobile applications for members.
“It can be much easier for members to complete an application themselves on a smartphone or iPad than to dial out to your call center, relay information, and have the agent fill in the application for them,” he said. “And credit unions enjoy tremendous cost efficiencies by automating this process.”
Choose the Right Technology
To ensure the digital application serves members well, Caddell advises credit unions to do their homework.
“It is important for any automated decision-making system to factor in key data points such as residence history, job stability, income and credit,” he said. “But the decision engine also needs to handle more granular queries in order to function well for members. For example, if you have a requirement for an applicant to show employment in a current job for six months, then you also need a status called ‘retired’ so credit-worthy members in this category can get approved without delay.”
Caddell reminds credit unions not to overlook millennials, either.
“Approximately 25 to 30 percent of credit unions don’t have a first-time buyer program without a co-signer,” he said. “These organizations are missing out on some great revenue opportunities. Plus, setting up a younger member’s first auto loan can be a very nice way to showcase your credit union and further the relationship.”
While being prepared in advance of the peak car buying seasons is always the best approach, Caddell notes that it is never too late to go after the business.
“We recommend setting up an auto loan recapture program that presents very favorable terms to members who have already purchased a vehicle,” said Caddell. “Offer to beat the rate of the competing lender – and provide an extra incentive, such as an additional $100 bonus. It is well worth it to many members to make the switch.”
He continued, “Remember that, for most consumers, the first check written every month goes to the mortgage, and the second goes to the auto loan. Ultimately, auto loans are very safe products for credit unions, and building this business can yield a profitable and reliable long-term revenue stream.”