Indirect Lending a Great Tool for CUs to Offer Members if Managed Correctly

Ten years ago only a hand full of credit unions offered automotive indirect lending. Today, more and more of America’s credit unions are offering their members the ability to finance vehicles through their credit union without actually visiting the facility. This has resulted in increased auto loan volume, as well as, increased membership for most credit unions. However, with this success, new questions and concerns arise. Credit unions can aggressively pursue auto loans but they must remember who they are serving. Other than the actual loan, banks have little involvement or concern regarding the consumers buying experience. Credit unions on the other hand have a vested interest in members, especially those referred by the credit union to participating auto dealerships. Price, product, location, overall buying experience, and more, reflect greatly on the credit union. Therefore credit unions must carefully assess the entire process in which members shop, buy, and finance vehicles. One of the greatest credit union attributes is the quality of service provided to members. Indirect lending is a member benefit, and as with all member benefits, quality and member satisfaction is paramount. Offering financing at dealerships without a comprehensive buying support program can greatly reduce results, as well as place members in harms way. Most indirect lending products include some type of member referral system. Credit unions should consider the buying support portion a crucial part of the indirect lending package. Thanks to today’s technology, credit unions can easily offer members online automotive tools and resources. Like most consumers, members have come to expect this type of product. Credit unions however, are held to a higher standard and should offer a more comprehensive and personalized product in order to meet the needs of members. This should include telephone support, trained sales staff at each dealership location, online access to the used inventory of participating dealerships, and more. From shopping and buying to financing and ownership, credit unions need to separate themselves from the crowd in both product and quality. It’s safe to say that we all have purchased at least one vehicle in our life. It’s also safe to say that almost all of us understand what makes the auto buying experience pleasant or unpleasant. By nature, auto dealerships are aggressive and focus mainly on sales and profits. In order to protect member’s interests, credit unions must put safeguards in place that deal with all aspects of the auto buying process. This includes shopping, buying, financing, and even ownership. Remember, the credit union label is on that vehicle for as long as the member owns it. A well managed and geographically friendly dealer network are the most important parts of a successful indirect lending/buying support program. Credit unions must carefully look at both the short term success and the potential long term consequences when developing a dealership network. Signing up dealers to offer CU financing to your members is the easy part. Training, dealership marketing, systems of accountability, and dealership executive management involvement are a few key components of a strong and cooperative dealership network that will breed success well into the future. When it comes to auto financing, auto dealerships and banks usually have short term relationships. This works for both parties for a many reasons. Most banks have a national presence; therefore going in and out of a particular market may not be detrimental to the bank. Banks also may choose to be the flavor of the month by buying aggressively (C and D paper) to lure dealerships. Once the bank stops buying this type of paper the relationship ends as quickly as it started. The dealership then moves on to the next flavor of the month. Credit unions must not look to mirror the relationship that dealers have with banks. The credit union/dealer relationship must be built on a much stronger foundation. There must be an ingredient rarely found in such relationships, loyalty. What’s in it for us? As in any business relationship, this is the question auto dealerships and credit unions ask themselves. A personalized, high quality buying support and referral program offers members something they can’t find anywhere else. The same is true for auto dealers. Banks and other lending institutions can not match what credit unions potentially have to offer auto dealerships. Dealerships will sacrifice the larger finance incomes they receive from banks if it makes good business sense. Indirect lending alone is not responsible for a dealerships successful participation in the program. Auto dealerships’ loyalty to credit unions and their members comes as a response to participating in well managed and profitable automotive resource and buying support programs. Credit unions, auto dealerships, and members must all benefit from the program. The advantages to the credit unions and auto dealerships are clear. The advantages to members may not be as clear. The same mutual trust that makes the credit union/member relationship so special can also cause danger. When a member is referred to a dealership by a credit union, the member assumes they are in a safe place. What type of infrastructure do you have in place to assure that your members are protected during the entire auto buying process? Indirect lending is a powerful tool that has and will continue to provide tremendous opportunity to credit unions throughout the country. As with any powerful engine, it is the strength of the infrastructure that will provide safety and longevity. Auto loan growth has exceeded many credit unions expectations, it may be time to consider members expectations beyond indirect lending.