The past four years have been some of the strongest ever for new
auto sales. Light vehicle sales topped 16.8 million units in 2002,
and NADA is predicting that purchases will reach 16.3 million this
year. Much of the sales activity in recent years has been driven
by the low (and 0%) finance rate promotions offered by auto manufacturers,
resulting in a drop in credit unions' auto loan market share.
In order to better compete for auto loans, credit unions are increasingly
participating in indirect lending programs that enable potential
purchasers to apply for a credit union auto loan at the dealership.
Credit unions considering participation should be aware that the
programs may require significant resources to manage and administer.
In order for indirect lending programs to prosper, credit unions
must work with dealers to develop incentives and processes that
will help both parties reach their respective goals.
Indirect Lending Requires a Long-Term Commitment
Last week, Callahan's hosted a webinar on current credit union
auto lending trends and performance. During the presentation, Larry
Biernacki, senior vice president of lending at San Antonio FCU,
discussed his credit union's approach to indirect lending. San Antonio
FCU has run a very successful indirect lending program since 1987.
Last year, the credit union generated over $500 million in new auto
loans through indirect lending.
Biernacki outlined several requirements for credit union indirect
- Learn the business. Understand what it takes for dealers
to be successful.
- Know your partners. Build relationships with dealers
and treat them as you would like to be treated.
- Stay consistent. Do what you say you're going to do.
- Monitor dealers' performance. Eliminate relationships
that don't make sense.
- Understand the long-term commitment required.
Fewer Credit Unions Now Manage Their Own Indirect Lending Programs
Credit unions responding to a recent Callahan & Associates
auto lending survey were asked whether they currently use indirect
auto lending, and if so, to describe how their program is managed.
Two types of programs predominate: those run by a single credit
union and those managed by a CUSO. Compared to a similar Callahan's
survey conducted in 2002, fewer credit unions are now managing their
own programs, and more are participating in programs run by a CUSO
or multiple credit unions.
This shift could be due to the resources required to run a successful
indirect lending program. Many credit unions responding to the survey
echoed Biernacki's comments on the level of commitment required
to succeed in indirect lending - by building good relationships
with dealers through regular visits, providing quick turnaround
of loan applications, offering sales incentives, and scheduling
periodic dealer appreciation/recognition events.