Credit Unions Respond to Car Buyers’ Behaviors

Car buyers typically make loans an afterthought, but some credit unions are working to be at the forefront of their members’ minds as they shop for vehicles.

Randolph-Brooks Federal Credit Union in San Antonio ($9 billion in assets, 769,214 members) allows members to shop online through their preferred dealer network or through Carvana, a Phoenix, Ariz., company that sells used cars online and delivers them directly to buyers.

Other credit unions use services such as GrooveCar, which allows credit unions to put a local car-buying site on their websites, connecting members with a network of the credit unions’ preferred dealers.

The approaches differ, but the goal is the same: to get shoppers to the credit union’s website first, to the virtual tire-kicking pages quickly, and ultimately draw them back for the loan.

“It’s all about engaging the member, and getting from point A to point B very quickly,” said Robert O’Hara, GrooveCar’s vice president of strategic alliances. “I don’t need to read a lot of content on the credit union website to get to the Honda Accord page.”

Why should someone hankering for a car think to visit their credit union’s website on their lunch break to compare prices or features?

“Credit unions are in a perfect position because of the trust members have in their credit union,” Eric Budzinski, assistant vice president for marketing at GrooveCar, said.

The credit union aligns its approach to members so that it starts where members start: buying a car, and makes the loan a natural next step. “At the end we have a low rate loan to make the car affordable,” Budzinski said.

The odds are stacked against most car buyers from the start. They buy only a few cars in their lifetimes and buy from dealers who have multiple ways to increase their margins on each deal, and use those tools every day.

For starters, the best practice remains for car buyers to separate the issue of what they can borrow and what they want. Some credit unions, including State Employees’ Credit Union of Raleigh, N.C. ($38.4 billion in assets, 2.3 million members), offer pre-approvals so that members can walk into the dealership with a virtual check in hand.

That means their members only need to focus on price with the dealer.

Sullivan said it’s easy for a member to pay too much money when they’re not working with a credit union with a mission of serving the member, and with no interest what particular car a member buys.

“I’m providing a loan,” she said. “You’re getting a car, and obviously I want you to be happy with that car, I want you to be able to afford that car, and I want you to make payments. I want you to continue to feel that you’re getting what you need because whenever you want to get another car, I want you to come back to me.”

One of the most common misconceptions among lenders is that the consumers coming to them are familiar with car-buying and have done their homework on their car and their budget, said Mark Coburn, senior vice president of lending development at State Employees’ Credit Union.

“Unfortunately, this is most often not the case as most consumers find the car buying process and anything related to it very daunting and need guidance through the entire process,” Coburn said.

For inexperienced buyers, State Employees’ provides the member with information about vehicle values, rebates, dealer add-ons and Carfax reports. State Employees’ promotes its Auto Power Program to members. If they qualify, they get a pre-approved check to purchase their next vehicle which they take with them to the dealer.

Information that is relevant and interesting can also draw consumers to a credit union’s website. GrooveCar provides clients with blogs and 30- or 60-second videos, Robert O’Hara, GrooveCar’s vice president of strategic alliance, said.

GrooveCar has been working only with credit unions since it was founded in 1999, and its clients range from $8 million to $8 billion in assets. It’s a white label service, meaning its features are branded to the credit union and can be customized.

Its pricing structure is designed to be affordable to credit unions and ensure that GrooveCar is working for the credit union, not the dealers. For example, dealers are not charged to be on the car search sites. They are there at the discretion of the credit unions, most of which have preferred dealer networks.

GrooveCar sets up the site to the credit union’s specifications for fee based on asset size. A credit union with $100 million in assets would be charged $395 a month for a contractual period. It also charges a setup fee, but can waive it if the credit union signs a contract within a specified period.

In December 2016, GrooveCar sent out a new release naming 43 credit unions that had signed onto their service. At the time, they encompassed $3.9 billion in assets. Today that group encompasses $6 billion in assets of 459,038 members, ranging in size from Capital Credit Union, Green Bay, Wis. ($1.4 billion in assets, 112,793 members) to F.R.S.A. Credit Union, Winter Park, Fla. ($4.8 million in assets, 877 members).

A CU Times analysis of this cohort showed that they had faster overall car loan portfolio growth from June 2017 to June 2018 than the total for all credit unions reporting to the NCUA.

The GrooveCar cohort’s portfolio of new car loans stood at $459.7 million on June 30, up 31.8% from a year earlier, compared with 12.5% growth among all credit unions. Used car loan growth was slower: It rose 8.1% to $929.8 million, compared with 11% growth among all credit unions.

Many credit unions are also linking up with Carvana. The online used car seller founded in 2012 has yet to break even, but its losses have been narrowing in the past few years as it opens in new markets and improves its economies of scale.

It sold 6,523 cars to retail customers in 2015. That number rose to 18,761 in 2016 and 44,252 in 2017. In the first six months of 2018, units more than doubled to 41,034 in 65 markets. Gross profit per unit was $2,029; the average price was $18,813.

Last year it sold in 30 markets. As of June 30, it was selling in 65. It estimates each new market incurs $500,000 in capital expenses.

Last summer Carvana announced its 13th “vending machine” would open in Memphis. These are essentially glass-encased parking garages that dispense vehicles with a flourish, and cost about $5.5 million each.

Randolph-Brooks FCU employs some of the best technology available—including Carvana. It also examines each member contact regardless of whether it happened through their mobile phone or across a desk at a branch.

The goal is to reduce the “friction” between what the member is seeking and what they have to do to get find it, said Heather Sullivan, Randolph-Brooks’ senior vice president of consumer lending.

Applications need to be pared to ask only what is essential to make a decision.

“You make it the smoothest experience possible,” Sullivan said. “Anything to reduce the noise or the expectation that they have to do a bunch of steps to be able to complete the process.”

This year, Randolph-Brooks FCU has been improving its texts and other services to provide feedback to applicants “so they always know where they are in the process. They’re never guessing.”

Listening is key. Lenders are doing the paperwork on deals every day, but for the member each car is a life event.

“They may be letting go of the sports car because the baby is on the way,” Sullivan said.

“You have to be sure you’re not just focusing on the electronic side, that you’re really engaging in the relationship as well,” she said. “They want the experience to be frictionless and fast, but whenever we get feedback they love that someone cares; they love that they felt someone was their partner in this.”