For credit unions looking for ways to increase loan volume, used car sales are an excellent vehicle. And the more credit union employees understand new car depreciation and how to help members maximize the value of used cars, the easier it will be to drive up loan volume.
With auto loans comprising 36% of their average portfolio in 2006, credit unions have a major stake in their members' automobile purchases. However, according to CUNA, credit unions lose seven of every 10 car loans when credit union members buy a vehicle from an independent or franchised dealer that also provides financing.
But credit unions offer members significant advantages. Working in the credit union members' favor is the fact that depreciation makes used cars a great value. Most vehicles lose 15 to 20% of their value each year, but the first year represents the greatest loss on a new car. In fact, the two-minute drive off the lot can cost some owners up to 15% of their new vehicle's value. This instant loss reflects the difference between the wholesale price–what the dealer pays–and the retail price–what the consumer pays.
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Used automobiles also have cost-saving benefits above and beyond the depreciation. Some of the benefits of buying a used car include:
-Lower purchase price.
-Lower registration and license fees: these fees are usually tied directly to the value of the car, so a less expensive car means less money at the local DMV.
-Lower insurance premiums.
In 2006, more than 1.2 million used vehicles were sold in the United States. Not only are credit unions financing many of these vehicles and offering their members good deals, they are making headlines for their superior used-car financing options. Even publications like New York's Newsday have encouraged readers looking for a bargain to check out their local credit union, citing that credit unions beat banks by an even larger margin for used-car loans.
Despite this competitive advantage, credit unions must still compete with dealer financing.
One way to beat this competition is to partner with a used car sales company that not only steers buyers back to the credit union by creating customized used car buying programs, but also guarantees the credit union will receive 100% of used car loans 100% of the time.
In addition, credit unions can better position themselves to secure auto loans by touting the financing advantage members have when they obtain loan approval before shopping for an automobile. This helps credit union members overcome the fear and anxiety that accompanies negotiating a deal with such a significant financial obligation.
Other important considerations include partnering with a reputable used car dealer that offers members no-haggle pricing, which eliminates the negotiating aspect of car buying; a repurchase policy if the purchaser changes his or her mind within a specified period of time; and access to a wide range of high-quality, late-model used vehicles priced below Kelly Blue Book, the top consumer pricing book for used vehicles.
Credit unions also can arm members with tips to use during the purchase process. These and other strategies will help ease the anxiety and concerns of those who are weary of automobile shopping. The following suggestions will help ensure that members drive away with the vehicle they want at a fair price:
-Do research. Members should do as much advance research as possible on everything from online crash test ratings and reviews to the value of their current vehicle if they're looking to trade it for a newer model. In addition, annual maintenance costs or vehicle service contract costs and coverages should also be considered. After selecting a vehicle, request a CARFAX Vehicle History Report, which the dealer may provide free of charge.
-Be objective. Decide on body style, price range, and features that are needed vs. wanted prior to visiting a sales lot. This homework will make it much easier for members to choose the model and style that fits their needs and budget, as well as focus on comparable vehicles and avoid the temptation of extra bells and whistles.
-Consider insurance. A quick call to an insurance agent is a good idea once members have a few ideas regarding their vehicle purchase. Just because the monthly vehicle payment might fit the budget doesn't mean the insurance bill will. For instance, switching from liability coverage on a 2000 compact to full coverage on a late-model mid-size sedan would create quite a hike in insurance costs that members need to include in the purchasing decision.
-Get pre-approved. Pre-approval from their credit union enables members to know exactly how much they can spend when shopping for a vehicle. They also are likely to receive a better interest rate by securing the loan through their credit union.
Purchasing an automobile even in the best of times can be an intimidating process. With the current media hype that has made car buyers more apprehensive than ever, credit unions should make sure they are doing all they can for members to take away their fear…and take in the loans.
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