The continuing growth of indirect lending over the past decade has greatly benefited credit unions in two major ways: many credit unions have learned that it supports their bottom line, while it drives an increase in membership.
Driving Membership Growth
According to The 2007 Annual CUDL Business Intelligence Report, 30% of all CUDL credit union loans originated at the dealership went to current CUDL credit union members. The remaining 70% of loans went to members who joined their respective credit unions at the dealership.
“The Xerox Federal Credit Union has been offering indirect auto lending since 1999,” notes Timothy R. Myers, Vice President Sales & Member Services. “It has boosted our membership by over 20,000 new members.”
Perhaps the single biggest factor driving this growth is the ability credit unions now have to open new membership’s right through the dealer. When they learn of the savings offered by indirect lending, potential members are usually eager to sign up. Additional financial services through cross-selling efforts often follow, and in this way indirect lending supports the credit union bottom line, as well.
“Indirect lending has helped boost our membership,” notes Marsha Combe, vice president of call centers at America First Credit Union. “We are able to contact 30 to 50% of those indirect new members each month, and succeed in cross-selling additional financial services to half of those new members contacted.”
Evolving Dealer Relations
Another element driving the ongoing success of indirect lending is the changing relationship of auto dealerships and credit unions.
Less than ten years ago, dealerships and credit unions viewed each other as competitors in the indirect lending arena, which both at the time saw as a zero-sum game: every financing dollar captured by one was a dollar lost to the other.
With the subsequent growth in indirect lending, however, dealerships and credit unions have joined forces and are together grabbing a bigger piece of the auto loan pie.
According to the J.D. Power and Associates 2006 Consumer Financing Satisfaction StudySM, the growing rate of alliances formed by credit unions and dealers to offer new-vehicle financing has resulted in nearly 10% of loans issued at dealerships—up from nearly 7% in 2005 and only 3% in 2004.
Better Rates and Terms a Win-Win For All
Through the indirect lending channel, credit unions are able to provide more favorable rates, as well as longer term loans. These two factors are particularly beneficial and appealing to both members and consumers at a time of rising interest rates, as lower APRs, coupled with extended terms, help to lower the cost of financing a vehicle.
As credit unions have become more sophisticated about their lending programs, auto dealerships have taken notice and embraced them as partners. Now taking advantage of credit unions as a competitive lending force, many dealers, in fact, readily say that credit unions help them sell more autos as well as finance more buyers.
Dealers are also responding to better fees on the loan contracts. Dealerships used to make more money by sending purchase or lease contracts to banks or finance companies, but now credit unions have upped the ante and typically pay dealerships a full 1% of the loan contract. A number of credit unions permit dealers to mark up the wholesale interest rates on loans, as well.
Indirect lending has played a key role in credit union growth, from adding to the bottom line and to membership levels, to increased credit union auto lending market share – an 18% market share in 2006, and the industry is taking notice.
To learn more about this article and topics related to indirect auto lending, check out CUDL's Merge Winter issue and the inaugural issue of the Business Intelligence Report. Learn more at www.cudl.com.
A Credit Union-owned Service Organization, CUDL develops custom applications, training and marketing programs to help credit unions achieve their auto lending goals. The CUDL Network connects over 8,400 automobile dealerships with over 580 credit unions and their 18 million credit union members nationwide.