Credit Unions & Automotive Finance: What’s Next in the Somewhat New Normal
Auto financing will be a strong and consistent player going forward - a part of the business CUs will continue to count on.
When do you decide it’s the new normal, anyway? And what will it be? Perhaps we are doomed to spend the rest of our careers wearing masks, avoiding handshakes and taking Zoom calls from the bedroom.
I sincerely doubt that. But the truth is that no one is entirely sure what the future holds. At Credit Union Leasing of America, we navigated those initial dark days by staying flexible and concentrating on the big picture. Since then, we’ve thrived through the “COVID normal,” adjusted as life changed dramatically, redefined our approach and focused on the road ahead. During the initial rapid decline of wholesale values on vehicle lease returns, we extended leases and found outlets to remarket. We stayed focused through the rollercoaster of change that impacted everyone – and rallied to bring three major credit unions onto our program.
COVID-19 bears some similarities to the Great Recession: It happened suddenly, was unprecedented and has had far-reaching impacts. Whether you’re a professional, a parent, a consumer or all three, the pandemic has made it difficult to chart a course. Our credit union partners have battled through upheaval, from unheard-of home refinance volume and demand for recreational vehicle loans, to deferment requests and PPP loan applications – and all with branches closed or on skeleton crews. As we head into 2021, and as the ground beneath us begins to solidify, I believe automotive finance will be a strong and consistent player in that “new normal” – a part of the business credit unions will continue to count on. Here are a few of the lessons we’ve learned from credit unions and automotive partners:
Lesson 1: Be Optimistic About the Future of Automotive Finance
Six months ago at CULA, our world was all about vehicle lease extensions. With stay-at-home mandates closing dealerships, lessees facing imminent termination dates had few options for acquiring another vehicle. Today those vehicles with delayed returns are coming back, along with the ones already scheduled to return. In addition to the normal return cycle, there’s additional demand driven by the renewed importance of the personal vehicle.
So when it comes to the auto finance market in 2021, there are plenty of reasons to maintain optimism and believe in the overall strength of the market – even if the economy dips a little. Credit unions that participate in indirect lending are set up to win, thanks to three clear trends:
1. Pent up demand for new cars in an uncertain economy. Even though the economy is shaky, there is still consumer demand due to the months in lockdown and the lack of vehicle inventory resulting from slowdowns in manufacturing. In fact, according to Cox Automotive experts, third-quarter sales volume was only down 10% – a marked improvement over the 34.1% drop in the second quarter – and September sales were up 6.1% over 2019. And, according to a new TrueCar Survey, 82% of vehicle shoppers said their need for a vehicle remains the same, or has increased, despite the pandemic. People need vehicles, and with an uncertain economy, they need lower payments as well.
2. Consumer movement away from ride-hailing services. According to a recent report by CarGurus, 39% of those who previously used ride-hailing services – and 45% of those who previously used public transportation – expect to decrease their use or stop using them entirely. Among those, 41% expect to purchase a vehicle.
3. Continuously rising vehicle prices. According to Kelley Blue Book, the estimated average transaction price for a light vehicle in the U.S. was $38,723 in September 2020 – up 2.5%, or $940, compared to last year. Used car prices are also up – and considerably so.
These signals, and more, show that there’s plenty of reason to be optimistic about automotive finance, and car sales, into 2021.
Lesson 2: Invest in Meaningful Relationships
Forming proactive customer-partner relationships is critical. In our case, this was particularly important in navigating our relationships with auto dealers, as they are key partners in the leasing process. You must be proactive in these relationships to demonstrate commitment. With work-from-home restrictions and no-travel policies, making a personal connection is more important than ever. And that doesn’t just mean an email or a video chat. With proper safety protocols, such as wearing masks and being respectful of individual dealership safety policies, we found we could bring tremendous value to a dealer with an in-person connection where appropriate.
But, with these meetings at such a premium, they must have serious value, so we made sure we had an informed approach about inventories and priorities. Ultimately, the precious time with customers and partners should be well-used, efficient, focused and based on a strategic plan. That’s true in a normal environment, and exponentially so these days.
Ask yourself how you can tighten up and focus on how you’re spending your time – how to be ultra-productive and purposeful with your business relationships. In our case, we always ask, how is this visit not only helping the dealership, but also our credit union partner? What can we do to help them connect and thrive? This is one of those areas that will undoubtedly change permanently. Forget the ol’ “check-up call.” Have a clear and distinct purpose in all of your interactions moving forward.
Lesson 3: Keep Your Eye on the Ball
Once we all moved beyond that “deer-in-the-headlights” moment, we observed that those credit union partners who performed the best stayed consistent in their approach, kept their eye on the ball and looked to grab opportunities in the unsettled market. Many of them had learned a valuable lesson from the Great Recession: Don’t panic or overreact, and give the market some time. Once they were able to better understand the extent of the impact of the crisis in their markets, they began to create velocity in a safe manner. Here’s an example: One credit union took some time to assess, created a plan, continued to lease and is now ready to accelerate into the next year. Fear doesn’t lease a lot of cars, but looking at the big picture does because it helps keep businesses grounded and moving forward.
What we’ve seen at CULA is that this approach also helped partners get creative. One credit union offered a special rate reduction and adjusted its dealer compensation to encourage leasing business over deals offered by the captive finance companies. This was especially effective when many of the great captive rates and offers were pulled from the market. Others refused to rely solely on the refinance and PPP loan business. They were aggressive on rates for leasing and offered dealer incentives – if anything to just stay visible and active. We were able to help by evaluating each client’s market to advise on the most effective interest rates and find the best deals on specific vehicle makes and models. So keep your eye on the ball by looking for good opportunities.
The past year at CULA has been about learning lessons and using the wisdom gained from our partners and associates to emerge stronger than ever. Ultimately, when we look back on the pandemic year of 2020, we do so with pride that not only have we weathered another storm, but also helped our credit union partners weather it successfully and prepare for whatever the new normal brings.
Mark Chandler Vice President, Business Development CULA San Diego