The closing of more than 3,000 GM and Chrysler dealerships this year won't shock the credit union auto lending system, but it will force credit unions to refocus and restructure.
“It brings credit unions back to the big picture. From the credit union perspective the world hasn't fundamentally changed. Members are going to buy a car somewhere, and they're going to look to their credit union to finance it,” said Joe Greenwald, vice president of marketing and communications for CUDL.
Credit unions that have developed relationships with dealers that are now closing need to stop and think what the impact will be on members and where members will go to shop for cars now, Greenwald continued.
For some credit unions, this may mean growing and adding relationships, and for others it may just mean strengthening relationships they already have.
Credit unions that have a consumer auto shopping experience driven by the credit union, such as CUDL's AutoSMART program, will have more control over where members go to shop for cars, Greenwald said.
Credit unions that have this type of program in place can decide which dealership's inventory to highlight and where to direct members. This will shift members to a dealership that the credit union has a relationship with.
CUDL released a list of tips last week to help credit unions minimize the impact of a dealership closing.
The list, Greenwald said, is a set of good dealer relationship practices that CUDL tells credit unions to do at any point in time, but now it is especially important to go back and make sure they were prudent in their practices.
“In normal times things do get relaxed, and you may have a title sitting out there for a longer period of time, which is something you certainly don't want right now.”
For credit unions affected by the shutdowns, the list advises:

• Identify the number of open titles outstanding with that dealership and work to expedite the perfection of those titles.
• Understand the broad picture for the dealership, most specifically whether or not that dealership has other franchises under one roof.
• Consider prior history with that dealership and owner or principal.
• Ensure that any loan packages your CU has in-house or en route have the required documentation prior to funding.
• Understand the source of extended service contracts you are financing for your members.

Some Chrysler dealerships may convert to independent dealerships after their franchise is closed. CUs will need to determine if they wish to continue to do business with those dealerships.
CUDL has dealer representatives and its 10 regional business units working with credit unions in local markets to determine what the right course of action is for specific credit unions.
So far, Greenwald said CUDL has only received a handful of phone calls and concerns from credit unions about the closings.
“We're encouraged by the fact that this has not caused alarm or panic among credit unions. Credit unions may have already been taking action or are sorting out internally how to react.”
Michigan First Credit Union in Lathrup Village, Mich., has one Dodge dealership in its preferred dealer partnership program that will be closing. The credit union started its dealer partnership program two years ago. Michigan First partners with specific local dealers and directs members looking to purchase a car to those dealers, and, in turn, the dealer refers customers to Michigan First for financing. The credit union has approximately 20 dealer-partners in the local area. As of right now, president/CEO Michael Poulos said that all its GM dealer-partners are staying open.
As a result of the bankruptcy announcement and closings, Poulos said that the credit union chose to look more carefully at Chrysler-related deals and have chosen to be less aggressive with these particular requests.
Having the preferred dealer program has put the credit union in a good position now, Poulos said, because the CU regularly receives requests from other dealerships to find out how to qualify for the preferred dealer status.
“I do not think the recent Chrysler announcement will negatively impact auto lending. Despite the challenges the auto industry has faced over the past year, Michigan First has experienced significant growth in our auto lending program, and we believe this trend will continue.”
David Adams, president/CEO of CUcorp, the subsidiary of the Michigan Credit Union League that started the Invest in America program, said that all the upheaval going on right now just makes credit unions more relevant in the auto lending marketplace.
Of the incentives that Chrysler rolled out after the announcement that it was going into bankruptcy, the most prominent ones included credit unions.
“The incentives are a good example of the attention credit unions are getting from Invest in America and the importance of the continuation of the program,” Adams said.
He cautioned though that credit unions are going to need to become even more aggressive in developing strong relationships with surviving dealerships. Credit unions will need to figure out what dealerships will survive, where they are and how to establish or strengthen the relationship with them.
“These dealers are going to have a higher volume now. People are still going to buy cars; they just may need to travel farther to get them.”
In the first three months of 2009, the Invest in America program has sold close to 100,000 vehicles and brought $2.1 billion in revenue to Chrysler and GM. In terms of the impact the dealer closings will have on the program, Adams said that it is “one step back and two steps forward.”
Short-term auto loan volumes will be affected by the closings, but in the long term, Adams said, he feels credit union market share will continue to increase. The net effect on credit unions will be positive as credit unions gain more market share of the smaller pie of auto sales that will be out there.
Greenwald agreed that the closings will not cause the growth credit unions have seen in auto lending market share to slow. The only thing that is going to change, he said, is where people go to buy their cars.
The May data on Chrysler auto sales volume after the bankruptcy filing will be very telling, Adams said. It is data Invest in America and GM will be watching closely.
“With or without bankruptcy, there is going to be an American auto industry in some form, and credit unions are going to be there to finance it.”
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