Competing in today's auto finance market has become more challenging than ever before. Recent events have forced the automakers to provide dealerships with stronger incentives to help them sell vehicles. Who Are The Competition? As the new models are introduced in the fall months of every year, so are special incentives and rebates to help sell the previous year's inventory. After September 11, these incentives became much more aggressive. Zero percent financing has been offered before but rarely for terms as long as 60 months. Usually, low manufacturer rates are only offered for top of the line credit and 36-month terms. General Motors, Ford, and others began offering these zero percent rates to encourage sales this fall; more will follow. The cost to automakers to extend a zero percent rate to consumers on an average auto loan of $20,000 with a 6.5% rate can be $2,067 in interest on a three-year loan and $3,480 on a five-year loan. These rates are offered for a very limited time, many expiring on October 31. Some of the manufacturers are extending their incentive offers through November 20. These aggressive offers may have an effect on buying trends in the upcoming months and have already affected the market with an unusually large influx of used vehicle inventory. The recent zero percent financing offers have dramatically increased captive financing. According to a recent article by CNW Marketing & Research, captive financing increased from 48% before September 11 to more than 72% of new cars financed at dealerships. Although zero percent financing has been a challenging proposition for credit unions to compete with, the manufacturers have generated increased car sales and member traffic at the dealerships that probably helped credit unions with loan volume that may not have been there after September 11. Keep in mind that, although these rates appear to be an excellent deal, there is almost always a catch. This is where credit unions can make their mark. Know what's available to the public and share tips on auto buying and financing in your newsletters to your members. In your marketing efforts to members, include sample calculations of a typical auto purchase and the total cost over the life of the loan at zero percent (or a low manufacturer rate) and then with the rebate and your lowest new vehicle auto loan rate. Sometimes taking the rebate in lieu of the zero percent is a better deal. They can use the rebate toward their down payment and finance through your credit union. Many times the models offered at zero percent aren't the most desirable. Teach your members to read the fine print, give them resources through your Web site to research vehicles, and they will be more likely to utilize your products and services. If the manufacturer's low financing calculation versus the rebate works out in your member's favor, then let them know they are getting a good deal. CU Direct tries to keep our participating credit unions informed about recent events in the auto market, but we have encouraged credit unions to also be proactive in educating themselves. Publications like Automotive News and Auto Finance News offer great information about current events in the auto market. Subscribing to Cross Sell Reports (available in some states) can tell you which lenders are working closely with local dealers. These reports can help your credit union gather information about your competitors and find out what they are doing to earn the dealers' business. Market Your Product Where is your credit union most competitive? Leverage your relationship and your products through effective marketing and communications: * Educate your members in your newsletters and mailings; * Increase marketing efforts during fall incentives – increase your marketing efforts to educate members about their options, your great rates, and the automotive services that you offer; * Offer special incentives for used car buyers – create special offers and remind members about your competitive used vehicle rates. With the increase in used vehicle inventory and a change in the market toward saving money, consumers could be trending toward the purchase of used vehicles in the next several months as incentive programs expire. * Utilize resources available to credit unions – there are excellent marketing resources available to credit unions through CUNA, including vehicle buying and pricing guides and online educational resources. CUNA's Credit Union National Brand Campaign is another way to continue building awareness of credit unions. Business as Usual Credit unions have competed for auto loans against manufacturer subvented loans since 1973 and have continued to maintain over 20 percent of the market share, and the share is growing. Credit unions are working with dealers now as never before, and through these relationships, are building even more opportunities for credit unions to increase their market share while providing convenient service to members. We can't predict what will happen, but we can make every effort to compete and prepare for new opportunities as they arise in this ever-changing market.