Some Things in Life are Hard, Auto Loans with Texas Dow ECU Are Not

LAKE JACKSON, Texas -An initiative begun simply as an effort to improve member service has more than doubled monthly auto loan volume for Texas Dow Employees Credit Union. The credit union’s new “Dealer Direct” program simplifies the loan application process by providing members on-the-spot credit union financing at participating area car dealerships. It also reduces the chances of dealerships making loans to credit union members through their auto manufacturers’ finance corporations. “Before instituting this program, members had to fill out paperwork at the credit union, go to the dealership and negotiate the deal, then come back to the credit union to sign papers. They were getting inconsistent decisions from one loan officer to the next and sometimes from one branch to another,” said TDECU President and CEO Edward Speed. “Of course, the dealerships were saying, `You don’t need to go back to the credit union. We can handle your financing right here.’ ” The program is a “ hybrid,” according to Speed, that offers the best features of both direct and indirect lending. Here’s how it works: TDECU has a contract with San Antonio Federal Credit Union’s CUSO, CARS, to handle loan origination at participating dealerships. The dealer’s F&I department transmits data to a CARS loan officer, who reviews and approves the loan in minutes. All paperwork is completed at the dealership. CARS sends the loan package to TDECU, and TDECU reimburses CARS for servicing with a “reasonable” flat fee per loan. “I was the senior vice president of lending at SACU for 15 years, so I am comfortable with the CARS program. I didn’t want to spend money to build my own shop, when it’s a slam dunk operation for them. But I have TDECU loan officers standing by to do approvals for those applications that don’t meet criteria for automatic approval. As part of the deal, CARS cannot turn down a member for financing. We have the opportunity to take a look at every member and their history with the credit union,” said Speed. Getting the Word Out The credit union generated member interest in the program by running three half-page color ads in the local newspaper. With the headline “Some things in life are hard. Getting your auto loan doesn’t have to be!” ads showed individuals mountain climbing, mowing a yard, and playing the piano. Copy informed members that they could “now get TDECU financing on the spot at dealerships and enjoy one-stop shopping.” The result? Monthly loan volume increased from $1.5 million to $4 million over three months. And most importantly, Speed said, “Members are happy.” “This was not a growth strategy,” he continued. “Dealers are not allowed to sign up credit union members. The credit union (with 80,000 members) is a substantial force in the marketplace already. This program was borne out of a need to improve member service. The tremendous increase in loan volume was an unexpected plus. “Another outgrowth of this is support of our `Buy Brazoria’ campaign. Brazoria is a small county south of Houston, and often people think they have to go to Houston to do their shopping. This program encourages the local community to purchase their vehicles from local dealers and to obtain local financing. By shopping locally we keep the economic revenue within the county where it benefits us all.” A unique twist given the program by TDECU has rallied dealer and community support for the program. As each participating dealer reaches $1 million in sales through the Dealer Direct program, TDECU is awarding $1,000 on behalf of the dealership to a local school of their choice. To date, the credit union has presented awards to four area schools to help fund school programs and foster academic excellence. Two dealerships have matched donations to the schools for a grand total of $6,000. “By donating to local schools, our members can be proud that they are part of a credit union that cares enough to support and promote academic excellence in our youth,” said Speed. The credit union capitalized on marketing opportunities by running separate quarter-page newspaper ads for each million-dollar milestone, thanking the dealers for their participation and announcing the recipients of the school awards. “We didn’t tell the dealers up front that we were going to do this,” Speed said. “We just showed up at their office and said, `You have surpassed $1 million in sales for us. To honor your commitment, we’d like to make a $1,000 donation in your name to the school of your choice.’ The first dealership said, `What’s the catch?’ When they found out there wasn’t one, they were so overwhelmed, they said, `We’ll match the donation.’ After it was publicized, other dealers started calling us to ask how they could qualify.” The schools also were very surprised and appreciative of the “no strings attached” donations, Speed said. Success is in the Statistics In addition to increased loan volume, TDECU has other concrete evidence of the program’s success. According to October 2003 Callahan and Associates’ Auto Count USA reports for Brazoria County, TDECU was the #2 auto lender out of the 143 institutions that financed vehicles. The credit union ranked behind only GMAC, but ahead of #3-5 lenders Bank of America, Ford Motor Credit, and Toyota Financial Services. GMAC held 13.5% of the market, compared to TDECU’s 9.3%. Of particular interest is that TDECU captured more loans from some dealerships than their captive finance companies did. For example, at one Chevy dealership, 40.4% of the vehicles were financed through TDECU compared to 21.1% financed through GMAC. The credit union has had few problems with the program, according to TDECU’s Vice President of Risk Management Paul Perdue. “Delinquencies have been very low. We’ve had no first payment defaults, no fraud and no repossessions. The few times that dealer reps attempted to set financing at a higher rate, members called them on it and dealership owners chastised them, because they didn’t want to mess up a good program.” While there is enormous pressure on dealers to send loans to their own finance companies, Speed said the Dealer Direct program has actually helped bond dealers to TDECU, “because we’re right here and we can resolve problems and exceptions more quickly.” “One mystery we haven’t solved yet is that 30% of the loans we approve while the member is sitting in the dealership – and these are at a good interest rate – are not closing. We don’t know if we’re losing them to 0% financing or they’re in a situation of upside down financing where they want more than we’re willing to loan, or what,” Speed said. Regardless, Speed is enjoying the results of the Dealer Direct program. “We’re having fun, and our members are so pleased.” -