How to Crack the Credit Union Code

Credit Union Land is a strange and wonderful place … for dealerships that are able to crack the code. Credit unions are a tremendous resource that helps those dealers and their F&I professionals sell more vehicles, sell more F&I products, and make more money.

For other dealers, that %*&$#@! local credit union is an intractable, obstinate adversary that continually costs them thousands of dollars in blown sales, reduced grosses, and lost F&I product sales. Yet it doesn’t have to be that way.

In 1934, President Roosevelt signed the Federal Credit Union Act to help make credit available through nonprofit, cooperative credit unions. ​Because credit unions are not-for-profit financial institutions owned by their members, they typically offer higher savings rates, lower fees, and lower rates on loans than for-profit financial institutions, like banks. Unlike banks and other retail businesses, their focus is on serving their members, rather than maximizing profits — the antithesis of what most automobile dealers focus on.

It’s also why many dealers and credit unions constantly butt heads.

With all that in mind, here is a four-step process you can implement today to turn your local CU from foe to friend:

1. Understand the Code Behind the Code.

Edward Filene, considered to be the founding father of the American credit union, once said that “Credit unions are not for profit, not for charity, but for service.” This is why credit union members are some of the most loyal customers you will ever find. They love their credit union.

For a dealer, turning that local credit union from an adversary into an ally is going to be immensely more profitable for both the sales department and the F&I department than endlessly trying to beat their rate. That’s hard to do. Because they do offer consistently low interest rates, especially to members who don’t have 800-plus credit scores.

Consumers today are infinitely better informed and more financially astute than they were 30 or 40 years ago. Not only do they often begin shopping for vehicles online, studies show consumers also research their financing options online. They can also calculate monthly payments, apply for financing and make their car payment right on their phone. They also talk to their credit union and ask for their advice when it comes to buying a car and obtaining financing. They know their credit union is there to serve them, not sell them. So they trust their credit union.

Car dealers, not so much.

2. Test the Limits of Loyalty.

Fortunately for automobile dealers, when it comes to financing and interest rates, member loyalty to their credit union normally only extends up to about one-quarter of a point. Even long-term credit union members will compare multiple finance sources in an effort to obtain the best rate available when it comes to financing their new or used vehicle. Everyone wants to be an informed consumer and get a good deal.

With information on financing and interest rates readily available, every dealer and credit source has to offer competitive rates or risk alienating potential customers. Captives are a reliable source of financing for prime and superprime customers. It’s the nonprime and subprime customers for whom most dealers want and need more finance sources, especially when it comes to used vehicles.

As it happens, these are precisely the customers who are also the sweet spot for most credit unions. In fact, in virtually every credit union’s charter you will find this exact verbiage, since their mission is to “provide provident credit for people of modest means.” Credit unions were not created to provide cheap money for wealthy people with great credit. Those people can get money anywhere. A credit union’s mission is to provide low-cost, easy-to-obtain loans for people of modest means.

According to the National Credit Union Association, approximately 84% of credit unions are involved in some form of indirect lending, and another 8% are considering becoming involved. In a recent survey by TransUnion, credit unions ranked auto loans as their highest growth opportunity over the next 12 months.

Members appreciate having their credit union available as an option when and where they need financing — at the dealership. If their credit union is an available source at the point of sale, it can be a win-win situation for your dealership, their member and the credit union.

3. Get on the Phone.

So how do you turn those credit unions you compete against into reliable sources you can count on when you have a nonprime customer? Well, you can always contact Credit Union Direct Lending or Credit Union Direct Connect to see if their credit union is in CUDL’s or CUDC’s network. Failing that, you can determine whether they might have other credit unions in your area that are part of their network. If so, they’ve already done the heavy lifting in creating mutually beneficial relationships between dealers and those credit unions in their network.

If not, the first step is to start a relationship with that local credit union. That means going to the credit union and meeting the people who work there. If you want to become a trusted partner, they first have to meet you, the dealer principal, face-to-face! Contact the credit union CEO or the head of lending to schedule a time when you meet face-to-face and find out what’s important to them.

Do not lead with increasing CU profits! If you lead with increasing their profit or more loan volume, that’s a non-starter with every credit union, because they are not-for-profit financial institutions! As the retired CEO of one of largest CUs in Texas explained in no uncertain terms, “I know of no credit union CEO who has profit or ROI in his or her annual performance or compensation plan.”

Rather, you need to find out what is important to the CEO. What is important to the credit union’s board? Is it membership growth? Protecting their members from being ripped off by unscrupulous dealers? Helping their members by offering added benefits, special pricing or discounts not available to nonmembers?

Your focus and your primary reason for meeting with the credit union CEO should be based on answering one question: “How can we work together to help your members get the car they want with the loan and the protections they need?” With credit unions, it’s not about the money. It’s about the relationship and how that relationship will benefit their members.

Credit unions are not homogenous in their focus, their operation, or their priorities. As the dealer, you have to develop a personal relationship with the credit union CEO and meet the other credit union execs, as well as all the various stakeholders. Take them to lunch occasionally. Small spiffs, special pricing, and sale days for credit union members are going to be far more important, motivating, and effective in building that relationship than increasing the credit union’s profits.

Everyone at the credit union needs a face to put with the dealership, someone they know they can contact if they have an issue — especially those dealer haters at the credit union who could attempt to squelch a better relationship with your dealership. If a member ever has a problem with your dealership, they need to know whom they can call. It should be someone they have confidence in and will take care of their members and fix the problem. There is no one better at that than the owner of the dealership.

4. Earn Trust One Deal at a Time.

With any credit union, member satisfaction is vastly more important than generating additional revenue. Honesty, consistency and guaranteeing the credit union members will always be treated fairly by your dealership is the key to turning a credit union into a new finance source. For a credit union, becoming a trusted partner is not something you buy; it’s something you earn — one member, one transaction, one loan at a time.

The CEO’s greatest fear is that someone from the dealership is going to take advantage of their members by marking up the service contract or other F&I products an exorbitant amount. Especially if they have recommended your dealership to their member. If that ever happens, there will be no second chances. If anyone at the dealership takes advantage of a member, or the member has a bad experience, that relationship is over.

A credit union CEO cannot stand “noise” from the board or complaints from their members. Any relationship they enter into with any dealer has to be viewed by all their stakeholders as mutually beneficial. The CEO has to be able to go before the CU board, their staff, and their members and say, “Look what we did for our members.” It could be a monthly credit union member’s night, a special CU hotline, or lunch or a door prize for their monthly chapter meeting. It could be providing the CU with ATM or deposit slips with a coupon on the back for a free car wash, oil change, or tire rotation.

And yes, it also means you are probably going to have to make some concessions for credit union members on F&I product prices. Your prices will need to be both fair and consistent for all members. You may not be able to mark up the interest rate, but you will be able to receive a flat — either a set dollar amount or a percentage of the amount financed. Bottom line, rather than make a lot of money on a few members, you’re going to make a little less money on a lot of members.

Cracking the code begins with first having a conversation with the credit union CEO, building a personal relationship and finding a middle ground that works for both parties. The credit union wants to retain the loan and protect their member. You want to sell the car, but your dealership needs to make money on the financing and by helping their members get the F&I products they need. How can we work together to help your members, the credit union, and the dealership?

No matter how big or small your dealership, as a dealer, you must always demonstrate ethical standards that are beyond reproach. The overriding consideration in every customer interaction and business transaction must be the development of a long-term, mutually beneficial relationship built on trust, integrity, and mutual respect.

In Credit Union Land, it’s not about the money. It’s about honesty, transparency, and a commitment to helping their members.

What’s the secret code to developing a new finance source and creating a mutually beneficial relationship with a credit union? It’s answering that all important question: How will this new partnership with your dealership help their members?

Ron Reahard is president of Reahard & Associates Inc. and ranks among the industry’s leading F&I trainers, authors, consultants, and speakers. Contact him at [email protected].