Financial Plus Makes GM's `Employee Discount for Everyone' Work for CU's Indirect Lending Activity

FLINT, MICH. – Detroit carmakers aren’t the only ones enjoying the benefits of their latest incentive program to boost car sales. Several credit unions are also seeing the seeing the rewards of the “Employee Discount for Everyone” promotion in the form of increased indirect auto loan volume. General Motors reportedly increased its sales of new cars and light trucks by as much as 47% in June after introducing its Employee Discount for Everyone plan. Ford and the Chrysler division of DaimlerChrysler launched similar programs July 1. Will McGregor, general manager, Indirect Lending Technologies LLC says he was a bit nervous when GM first announced the pricing incentive about the effect it would have on credit unions’ indirect lending portfolios. The Salt Lake City-based company owns and operates an Internet-based indirect lending system and primarily serves the credit union market. The company has relationships with about 50 CUs throughout the U.S. and several CUSOs, as well as has a co-marketing agreement with the Michigan, Idaho and Montana credit union leagues. He says when he looked at the company’s numbers May-July, he was a little surprised. “Of those credit unions on our system that do both new and used cars, the percentage of new cars financed, as a percent of total cars financed, grew from about 60% in May to about 71% in June. So far in July it’s about 73%.” McGregor opines that while the employee pricing incentive “is a great deal for the Big 3 manufacturers, that doesn’t mean they’re getting all of the financing business.” Financial Plus CU, located in the heart of Big 3 country – Flint, Mich. – is proof of that. Even though the majority of the $250 million CU’s 35,000 members are GM employees, the credit union has seen tremendous gains in its indirect lending portfolio since June. David McGrain, vp of marketing, Financial Plus CU says the CU’s winning formula is focusing its attention on building dealer relations to shore up its indirect lending portfolio which its managed on its own for several years and currently makes up about 39% of Financial Plus’ total loan portfolio. In 2003, Financial Plus did 1,125 auto loans worth a little more than $19 million; in 2004 it funded 1,551 auto loans worth $25,585,651. By July 25, Financial Plus had funded more than half the indirect loans -966 totaling $15,248,084 than it did for the entire previous year. That gain was fueled by the surge in indirect loans the CU did in June – 166 loans worth $2,809,230 – and in the first three weeks of July -158 loans for $2,599,888. It would be easy to say Financial Plus’ field-of-membership gives it a head start in the Employee Discount for Everyone program – although it’s had a community charter since September 2002, it was previously an occupational credit union that counted most of its members as GM employees. Even now, McGrain said the majority of Financial Plus’ membership are GM employees who are eligible for a discount even without the auto manufacturer’s incentive. Still, McGrain says auto loan funding through the credit union has never been guaranteed. “It all comes down to the relationship with the dealership,” he stresses, adding that the credit union didn’t do any special marketing campaign to attract the loans. Financial Plus has relations with 70 dealers, and “even though a lot of our members have an employee discount, the dealers still got a significant increase in volume, and we were able to capture a lot of those loans.” Consider these statistics McGrain cites: while GM saw a 41% increase in June sales compared to May, Financial Plus saw a 38% increase in vehicle loans financed. “Regardless if the majority of our members are GM employees and have a loyalty to the manufacturer, the dealership is still the driving force behind financing. More precisely the F&I person at the dealership, and whether they give you the loan or not depends on the commission you pay. That’s the driver. With our rates, we’re not trying to match what GMAC or the large banks are paying the dealers, we’re competitive,” he explains. McGrain adds that Financial Plus doesn’t preapprove members for auto loans because “the F&I person will make their decision on who to give the loan to regardless if we pre-approve the member. In the credit union indirect lending industry, the dealer F&I person is in the driver’s seat for financing.” The best rate the credit union has been offering on new or used vehicles is 4.5%. It also does risk-based lending. “It’s really in the F&I person’s hands. Dealers are concerned with getting the loan financed before the consumer changes their mind about buying the vehicle and getting the buyer to drive the car off the lot. The consumer wants to know what the monthly loan payments will be and can they drive the vehicle home. That’s why the relationship with the dealership is so important, that’s why when they send the financing application out to multiple lenders it’s so important for us to turn it around quickly,” says McGrain. Speed and dealer relations are essential in the indirect lending business, McGrain emphasizes. -