Credit Union Indirect Lending Programs Require Commitment to Succeed

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.

 
 

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 lending success:

  • 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.

 

 

 

June 17, 2003


Comments

 
 
 

No comments have been posted yet. Be the first one.