Although the Wall Street Journal just reported that car sales for 2011 might be slower than expected thanks to the Japan earthquake and rising gas prices, sales are still up over 2010 – a projected 12.9 million cars and light trucks for this year compared to 11.6 million in 2010 and only 10.4 million in 2009, according to IHS Global Insight. Car sales are up, but what share of the financing will credit unions claim?
It’s a critical question, considering that car loans traditionally comprise about one-third of any credit union’s loan portfolio. Auto loans also act as a gateway to membership, as millions who first became credit union members for the sake of auto loans will attest.
In 2009, credit unions captured a sizeable 19.9 percent of the auto financing market, while big banks and captive lenders backed away from extending credit. Now, as competition has returned with a vengeance – wielding tactics like zero percent financing – credit unions have seen their market share slip to just over 15 percent. Can credit unions regain a competitive edge?
For starters, a little perspective goes a long way. It’s hard to compete with zero percent financing; it’s even hard to make a case for trying (because, what’s the margin on a zero percent loan?) Some banks have been sweetening the pot for dealers with flat fees of 2.5 percent or more. That isn’t a party credit unions want to join, either.
Still, the growing auto market represents opportunity. Here are a handful of ideas for snagging your share – and maximizing your gains along the way:
- Be there or be square. You can’t win a loan if borrowers can’t reach you when they’re ready to apply. CO-OP Financial Services’ new CO-OP ExpressLink service enables credit unions to use CO-OP Member Center to underwrite indirect loan applications 24/7. CO-OP ExpressLink works with both CU Direct’s CUDL Decision Manager and its new Lending 360 loan origination system. The result? Round-the-clock availability, even if you aren’t staffed for it yourself.
- Solidify dealer relationships. Remember that 87 percent of buyers arrange financing at the dealership, according to JD Powers and Associates. Make sure car buyers can access you through their dealers. Captive financing offers may be taking center stage right now, but dealers haven’t forgotten that credit unions were there with financing during the credit crunch.
- Communicate with your members. Remind members that you have attractive financing offers available and engage them early in the buying process with preapprovals. Current members are also a prime target for refinancing. Do they know what you have to offer?
- Consider the entire process. Could you win more loans by offering an auto buying service? Alternatively, the new “Sell Your Ride Member Program” on CUDL’s AutoSMART site allows credit union members to list and sell their used vehicles – very smart for tapping into the used car financing market.
- Take your eyes off the prime. Although A-plus borrowers are always a joy, they’re being courted with nearly unbeatable offers from banks and captive lenders. Now’s a great time to take a closer look at the growing rank of B- and C-rated borrowers, who need financing alternatives too. Just make sure you have the systems in place to manage risk.
- Once you’ve got them, don’t let go. Though car loans are a great thing in and of themselves, don’t forget to fire up the relationship marketing once the loan is extended. You have a lot to offer your members, but it’s up to you to communicate your value effectively.