LAS VEGAS – Anyone who's bought a car recently knows that the entire process – from researching a vehicle to making the actual purchase – has changed from what it used to be. So it came as no surprise to the more than 250 representatives from 90 credit unions who attended CU Direct Corp's third annual CUDL Auto Lending Symposium here June 20-21 that the invited keynote speakers emphasized the growing importance of auto lending to CUs' loan portfolios and encouraged credit unions to explore ways such as indirect lending, to grow that portion of their business. Credit unions only have to look at the numbers for proof of the influence of the Internet on consumers' auto purchasing habits – among consumers who purchase new vehicles last year, 54% used the internet to research a vehicle. That is expected to increase to 62% this year, and to 73% in 2003, Chris Denove, a partner at J.D. Power & Associates told attendees. In 2000, prospective buyers spent an average of six hours car shopping online and visited an average of seven automotive Internet sites, compared to an average of 3.6 hours online shopping and 4.9 sites visited in 1998, he reported. But while 54% of all vehicle buyers in 2000 used the Internet to research purchases, only 16% submitted online purchase requests, and only 5% ended up buying online. Consumers who use the Internet for car shopping are not using it to finance their purchase, said Denove. In 2000, 23.8% of used car purchasers researched financing online, but only 1.2% funded a purchase through an online lender. For new car buyers, the figures were 18.1% and 1.5%, respectively. That's the window of opportunity for credit unions to boost their auto loan portfolios. But CUs need to keep in mind a point made by another keynote speaker at the conference, Chip Filson, president of Callahan & Associates. "Our traditional value proposition based on employer affinity, below market pricing and physical convenience in the workplace is increasingly at risk from new competitors offering commodity products and banking services as part of a larger financial relationship, or as a result of the unregulated nature of the Internet," said Filson. "Auto lending has always been an important part of credit unions' loan portfolios. It currently makes up 40% of their portfolios," said Filson. "Moreover, it's fast becoming the most important relationship credit unions have with their members." Indirect lending programs have allowed credit unions to capitalize on that relationship by opening up new lending channels for CUs. According to Callahan's 2001 Indirect Lending Study, almost half of the CUs surveyed that offered indirect lending had average assets of $338 million, compared to those without the service that had average assets of almost half – $116 million. Of all the types of credit unions that offer indirect lending, community CUs dominate other types of charters – 62% of community credit unions offer indirect lending, compared to 45% of CUs with a limited charter and 13% of those with a single sponsor. "There's still a lot of misconceptions about indirect lending," Filson told Credit Union Times in a follow-up interview. "Many credit unions are still under the impression that all that's involved with setting up an indirect lending program is going out and arranging to get loans from dealers. They don't realize there is a complete range of strategic and tactical choices they can select from." Among those CUs surveyed that offer indirect lending, 52% offer the service in-house, 29% offer it through a CUSO; and 19% do it through a non-CUSO. But it's those CUs who provide indirect lending through a CUSO that report the highest median number of relationships with dealers – CUSO, 75; non-CUSO, 50; and in-house, 23. Similarly, CUs offering indirect lending through CUSOs indicate the highest satisfaction with their program – 80% compared to 65% for an in-house program and 64% for a non-CUSO program. "More than being just a program dealing with auto loans, CUDL is a network for the future," Filson told attendees. Not only are CUs' auto loan penetration higher with CUDL than all U.S. credit unions – 19.04% v. 15.83%, respectively – CUs with a CUDL relationship also report a higher member growth – 5.24% v. 3.49%. Jeffrey Rachor, executive vice president, retail operations for Sonic Automotive, the second largest dealer group in the U.S., picked up on Filson's point. Credit unions, like other national lending institutions, are consolidating and becoming more aggressive in the marketplace. They're proactively soliciting business from the automotive industry and grouping together and offering joint ventures. But Rachor delivered a dose of reality to credit unions – present credit union relationships are handled on a local basis and are viewed as competition to more lucrative lenders. To earn more indirect lending business, Rachor recommended credit unions form strategic alliances with dealers, allow rate participation, offer cross-promotional tie-ins, and allow retail consolidators to sell dealership products. -

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