Credit unions made significant strides into the auto lending market place in 2005. According to a new study by Callahan & Associates, Washington, D.C., credit unions’ auto lending market share steadily increased during the year and reached a record high 20.5 percent of market share in August 2005. When looking at the reasons for credit unions’ market growth, one can point to the advantages dealers gain by partnering with their local credit unions and/or a credit union network. According to J.D. Power and Associates 2004 Dealer Financing Satisfaction Study, 42 percent of dealers sighted dealer support, including quickness of processing applications and responsiveness of credit staff, as the most important lenders service. This was followed by competitiveness of their offerings (34 percent), including new and used car rates, the variety of plans offered and consumer qualification (24 percent), such as amount of stipend required for credit approval and flexibility of credit staff.
Keeping this in mind, the major benefits credit unions provide to their dealer partners include immediate loan decision and fast funding, potential new business from credit unions and their members, better interest rates and higher advances to dealers. By partnering with credit unions or a credit union network, dealerships can ultimately tap into a market to gain a potent, loyal network of automobile buyers, consisting of 85 million credit union members nationwide.
With a large majority of vehicles being financed at the dealerships, credit unions have increased their efforts to develop winning partnerships with dealers in order to generate new auto loans. As a result, over the last three years, there has been a significant increase in the number of credit unions providing indirect loans and online loan applications, offering dealers responsive and fast processing of applications. Credit unions have embraced the Internet, making it an effective car-buying tool for their members. In 2005, a full 79 percent of credit unions surveyed by Callahan offer their members auto buying services online, from researching a new vehicle to locating a dealer and financing a new car.
Indirect loans account for 12.5 percent of the credit union industry’s total loan portfolio and 33.5 percent of all auto loans. Credit unions have earned a well-deserved reputation among dealers when it comes to rates and product terms.
According to recent surveys by both J.D. Power & Associates and CUDL (Credit Union Direct Lending), dealers view credit unions as significantly more competitive than other financial institutions when it comes to product rates and terms. Further, J.D. Power & Associates Dealer Financing Satisfaction Study found dealers ranked credit union product rates and terms for new and used vehicles in the 96th percentile, versus other financial institutions which received an 88th and 82nd percentile ranking respectively.
As testimonial to dealers’ growing awareness of credit unions credibility as a partner, credit unions currently hold the top auto lender spot in New Mexico, Oregon, Utah, Nevada, Washington and northern California, according to CU Direct’s recent research. Furthermore, credit unions have consistently ranked in the top 10 lenders in approximately 20 states nationwide in 2005.
A majority of credit unions partner with either a CUSO or a third party vender to run their indirect lending programs, which further expands the credit union’s dealer network and benefits their dealers by processing loans with an even higher rate of speed and efficiency. A credit union network provides a single platform for lenders and dealerships to co-align seamlessly to provide fast, easy loan processing. The advantage for dealerships is the ability to gain direct access to a wide range of lenders and qualified leads in the form of loyal credit union members in their local community.
“I rely on our credit union network, where all lenders are in one place to get faster approvals and funding, as well as to gain access to better rates and advances that my captive may not be able to offer,” Bob Zsarko, Finance Director, Sierra Toyota, based in Lancaster, Calif. said. “Our credit union network provides access to hundreds of lenders that I may not normally have access to.”
Additional dealership benefits through a credit union network, such as CUDL, often include relationship management for processes such as Automated Clearing House (ACH) funding, which helps dealers reconcile and reduce call volume to the credit unions. In addition, credit union networks typically offer marketing programs and assistance, as well as training and education to both dealers and credit unions to help them maximize their success. Frequently, credit union networks have dealer representatives to help train dealership staff on credit union procedures and business practices to ensure their relationship with the network’s credit unions works to full advantage for both parties.
Partnerships are a credible, mutually beneficial approach for dealerships and for credit unions to achieve their individual business goals. By working together, dealerships can realize increased car sales by tapping into an ever-growing network of credit union members, while credit unions can successfully meet their indirect lending goals.
