Dealer Relationships Can Turbocharge Indirect and Direct CU Auto Lending

HOBOKEN, N.J. — There’s a common thread found among direct and indirect credit union auto lenders that have seen success in their programs over the past year; strong dealer relationships.Wright-Patt Credit Union in Fairborn, Ohio, Security Service Federal Credit Union, which has locations in San Antonio and Denver, and Ohio HealthCare Federal Credit Union in Dublin, Ohio, all said that the strength of their auto lending programs is focusing on building sound relationships with dealers in the area.The $1.4 billion Wright-Patt CU averaged $11 million a month in indirect auto loans in 2008, with June the highest month, bringing in $15.6 million. In January, the credit union had $11.88 million in indirect auto loans, which was almost double the amount from last January.Lee Barker, a manager in Wright-Patt’s indirect lending department, said that developing relationships with dealers outside of the credit unions’ seven-county field of membership has paid off. Over the past three years, Barker said the area has seen approximately 20 dealers close or get bought out. Once they lose a dealership, the credit union looks to replace it with another dealership located either inside or outside their membership field.“We recently had a dealership that was located outside of our field of membership become eligible through a merger, and the fact that we already had developed a relationship with them was a big plus,” Barker said.Security Service Federal Credit Union has $4.7 billion in assets and has been the largest indirect auto lending credit union in the U.S. for the past few years. Over this past year, Senior Vice President John Worthington said the credit union has remained consistent with its auto lending program and averaged $115 million a month in financing.Worthington attributes the credit unions’ successful program to maintaining good, consistent relationships with dealers.“We work closely with the dealerships, and our lending officers do personalized visitations to maintain that strong relationship.”This year, Worthington said the credit union plans to continue the same practices it started when it became an indirect lender in 1990: show that they are consistent lenders and build relationships with dealers. In the Texas area, Worthington said that they haven’t had any dealerships that have a relationship with completely close, but some have closed a few of their locations.Ohio HealthCare FCU, which has $40 million in assets and is strictly a direct lender, started to make a push to increase its relationships with dealerships in the area in September after launching a 25% off rate promotion.Dave Cottone, vice president of lending at Ohio HealthCare, said that the increased visibility at dealerships combined with the promotion jump-started the credit unions auto lending program. Cottone said that the credit union started to see auto lending pick up in the third and fourth quarter of last year. As of now, the credit union has $4 million in its auto lending portfolio.“We found a way to work with dealerships to let them know we’re a viable resource and at the same time cut expenses and keep rates down by being a direct lender.”The 25% off rate promotion drove the growth the credit union started to see in the third and fourth quarter last year. The credit union took whatever loan rate the member qualified for and reduced the rate by a quarter. If a member qualified for a rate of 6% they would be offered a 4.5% rate instead.Even though they are a direct lender, Cottone said that they felt they needed to get out into dealerships to address the issue of point of sale.“We knew that dealerships were pushing other lenders. We had to get out to the dealerships to show them we can get them the money as fast as possible with electronic titles and ACH origination.”Cottone said that being a small credit union with a total staff of 22 employees, each loan officer was given a list of dealerships and a call sheet and when one was out in the field another officer would cover for them. The loan officers visit each dealership every two months.“We introduce ourselves and ask them what they like to see and what financing they like to choose. We have some people say, ‘Look, we just want to get paid’ and others say, ‘We sell it, and we just don’t want you to undercut us.’”Once Ohio HealthCare joined the Invest in America program in December, Cottone said that they really started to go full force to get out into dealerships and that the program has helped create greater visibility with dealerships.Last week, Cottone called a meeting with the loan officers to build a program based on feedback from the dealerships and solidify an internal application program.For 2009, Cottone said they are planning on running the 25% off rate promotion in the spring and the fall and continuing with Invest in America.Wright-Patt also got on board with the Invest in America program in December and was able to get the information on their Web site within days after joining the program.Starting in February, Wright-Patt is offering a 3.9% rate auto loan separately from the Invest in America program. Barker said they have already received feedback from dealerships expressing appreciation and calling the promotion a “stimulus package for dealerships.”Many employees at the dealerships are members’ themselves, Barker said, which helps strengthen the relationship between the dealer and the credit union. To further stimulate a dealers usage of the credit union Barker said they visit the dealerships once a month and take employees out to lunch, get to know them on a personal level, and sometimes send them coupons to pay extra reserves.Barker said that getting out to the dealership once a month in person not only helps to strengthen the relationship with the dealership, but also is a way to check up on the dealers.“Look for signs when you go out there. Check if their used car inventory is depleted, see if they’re moving their inventory around, see how many open pods there are for sales people. If half of the pods are empty when they’re usually full, you know something is up. Read the attitudes of the managers you meet with.”Looking at 2009, Jeff Carpenter, vice president of membership and development, said Wright-Patt is offering the 3.9% rate promotion for the next month, will continue with Invest in America and will continue to evaluate the marketplace.“We get feedback that people are very glad we’re conservative and that we’re patient innovators. We’re going to stick our toe in the water and see what happens,” Carpenter said.–[email protected]