A deeper focus on consistent service, rather than profit, has made credit unions stand out as premier lenders that dealerships can count on, John Carrington, senior vice president of sales for CU Direct, told the Center for Auto Finance Excellence.
Smaller in size, member-based, and under less regulatory scrutiny compared with “big banks,” credit unions are leveraging their ability to create strong relationships with dealers to make auto loans the “bread and butter,” of its core business, Carrington said.
The relationship between dealers and credit unions only started to “take-off” after the Great Recession, Ben Wire, indirect lending manager of Forum Credit Union, told Auto Finance Excellence. Following the economic downturn, larger banks started to pull back from auto lending, and the dealers finally turned to credit unions — as the institutions were not as impacted by the recession.
Additionally, captives retracted due to the “turmoil” faced after the recession. “GMAC went away and was recreated as GM Financial, Ally Financial took over part of that, Chrysler and Ford had problems, so the captives got beat up in the late 2000’s after the recession, and they cut back,” Carrington said.
However, those large lending institutions eventually roared back after the recession and credit unions had to further adapt. Technology has helped credit unions become better at indirect lending with dealers over the years. Also, since credit unions are smaller in size and are “local by nature,” they have the ability to “focus on local relationships and local ties with dealerships,” Carrington said.
With interest rate factors serving in the favor of credit unions, these lenders identified the following keys to capturing local dealer business and ensuring a positive membership experience.
Keep It Local
Dealers recognize that credit unions tend to have “very loyal members,” Sonya McDonald, executive vice president and chief lending officer for Randolph-Brooks Federal Credit Union, told Auto Finance Excellence. “We have developed that trust over many years and dealers are developing relationships with credit unions to enhance their customer experience.”
Servicing the membership base is a major key that drives the success of credit unions — to ensure these relationships are successful, it is vital for credit unions to hire representatives to visit the dealerships.
“That communication and presence at the dealership is the most important thing for the success of our program,” Wire said. Currently working with around 160 dealerships, Forum Credit Union gets a representative to visit the dealers at least once a week and at minimum once a month, Wire said.
Provide Fast and Consistent Service
Because Credit unions are non-profit, they have the benefit of not being as impacted by interest rate sensitivity compared with banks, which helps credit unions provide “competitive yet consistent” lending programs, Carrington said.
Most all credit unions are lending in the prime and super prime credit tiers, so “Dealers need to know what to expect,” he added. “They don’t want to waste their time sending out applications.”
It makes sense for dealers to work with credit unions to get “the best rate for their customers,” McDonald said. Credit unions have traditionally held better rates than its competitors — even in a rising interest environment like we are currently in.
Additionally, faster funding is another factor that can strengthen the dealership-credit union relationship. Cash flow is the number one goal at the dealership, and if a credit union can fund same day, next day, or within 48 hours after receiving a loan package, “that’s excellent service,” Carrington said.
Establish a Mutual Relationship
Overall, the relationship has to benefit both the credit union and the dealer. “Most importantly, it needs to be a great member experience,” McDonald advises. “Make sure both sides are working in your members’ best interest,” she added.
To further develop the mutual dealer-credit union relationship, it is vital to remain “engaged” with the dealers, which ties back to the importance of having credit union representatives “show their face” to the dealers they serve, Carrington said. “Credit unions need to embrace the value and service that relationships can provide.”