For decades, WSECU ($2.3B, Olympia, WA) has been a go-to source among Washington residents for the financing of over-the-road recreational vehicles — including motorhomes, trailers, fifth wheels, and campers.
On average, these direct RV loans generate a steady flow of $10 million to nearly $14 million every year, says Julie Lind, the credit union’s vice president of consumer lending. What’s more, the credit union accomplishes this on a tight budget.
“We don’t have any major promotions or marketing costs,” Lind says. “It’s really just a matter of members looking for a loan.”
This performance is encouraging, but according to WSECU, it represents only a small slice of the pent-up demand that inundates the credit union’s market. That’s why in 2012, WSECU augmented its strategy by adding an indirect RV lending program.
“We’d seen a fair amount of success with indirect auto and felt comfortable with that process,” Lind explains. “So the next step was to cautiously expand to RVs.”
CU QUICK FACTS
Data as of 03.31.15
HQ: Olympia, WA
12-MO SHARE GROWTH: 7.55%
12-MO LOAN GROWTH: 26.42%
The credit union formed an initial network of approximately 10 partner dealers — all of which were well-known to the credit union and within a stone’s throw of its headquarters along the I-5 corridor — and pulled in $43.8 million in indirect RV loans that first year. That’s more than four times its normal direct RV activity.
In 2013 and 2014, WSECU funded another $116 million and $136.6 million, respectively, through the program. By year-end 2014, it incorporated some changes to slightly slow indirect RV growth, setting it on a more manageable pace of $30.3 million so far in 2015.
“We had reached about 94% loan-to-share,” Lind says. “That’s where we’d like to stay because we prefer not to borrow to fund loans.”
According to Lind, any credit union that wants to replicate WSECU’s success in RV lending must fully understand four main areas — the market, the product, dealer partnerships and promotions, and safety and soundness.
We’d seen a fair amount of success with indirect auto and felt comfortable with that process. So the next step was to cautiously expand to RVs.
“RV borrowers in our market consist primarily of the part-time recreational crowd and a few snowbirds who live in their RVs for a few months of the year,” Lind says. “Normally people aren’t looking to make these their primary residence.”
The borrowers are usually retired, have a credit profile that is more favorable than the general membership, and bring a large down payment to the table.
Currently, WSECU’s average RV loan balance is around $37,000, which is down slightly from as high as $43,000 in 2014. But according to Lind, actual loan application and approval numbers have stayed steady.
Demand for new versus used vehicles is split evenly. Although the average loan balance tends to be higher with new RV loans, alterations, rapid depreciation, and other factors can disrupt standardization in the manufacturer's suggested retail price. As for used models, Lind says the credit union can more easily weigh them using traditional valuation resources.
When it created its indirect RV program in 2012, WSECU offered up to 100% financing over 240 months and a middle-market rate. In 2014, the credit union enhanced its program with a 90-day grace period for the first payment.
Today, the credit union has slightly increased rates for both direct and indirect loans and offers 90% financing up to a max of $250,000. It has also reduced loan terms slightly, to 180 months, and no longer offers a 90-day window on the first payment.
“The elimination of that delayed payment has eased some regulator concerns about potential first payment default and negative amortization, even though this was not something we had experienced,” Lind says.
The product’s terms are less aggressively structured than in the past, but WSECU is still careful to keep its offering in line with market demand.
“If you want large RV loans, you have to offer long enough terms to make payments manageable,“ Lind advises.
Also, the origination and processing fees associated with RV lending can be higher than a standard vehicle loan. However, the credit union’s centralized lending model helps staff in the Member Loan Center efficiently process direct and indirect RV loans as well other loan products, which helps keep costs manageable for all parties.
Dealer Partnerships And Promotions
Over the past three-and-a-half years, WSECU has increased its dealer representative workforce — handling both RV and autos — from one employee to three and grown its individual RV dealer network to approximately 45 from the initial 10. It currently pays its dealer partners a fee of 1.25% per loan, but in the past that rate has fluctuated between as little as 1% and as much as 1.50%.
“Even though we might not always offer the highest dealer fees in the market, our service levels help us retain these partners,” Lind says. For example, the credit union aims for same-day or next-day funding. It also works with dealers to provide financial support for numerous co-branded philanthropy events in the community.
The credit union has also established partnerships with two local RV associations and serves as the exclusive sponsor for two annual RV trade shows each spring.
“These don’t work like your standard car sale events; it’s not all about getting the loans while on-site,” Lind says. “But we do get to tap into all the foot traffic as well as the corresponding pre-event media marketing, all of which helps us capture more business in the months immediately following, when most people actually buy.”
WSECU targets its own membership using these shows as well, reaching out to qualified members with a preapproval mailing that also provides free on-site event parking.
In addition, WSECU gets to showcase an important element of its brand: a commitment to community involvement. For each paid entry into the RV shows, the credit union and the show presenter make a joint donation to Washington State Parks. This had led to additional after-show exposure in traditional media and on social networks.
Safety And Soundness
Beyond the aforementioned modifications to the product structure, WSECU further manages RV loan risk — and creates liquidity — by selling some as participations.
In addition, the credit union tracks the delinquency and charge-offs at individual dealers. If it finds any degradation in loan quality, WSECU implements additional risk-mitigation steps — such as verifying all information on the credit application prior to funding or calling members to confirm details of the transaction.
The credit union also uses a data analytics software company to better track things like payoff trends. Such data is necessary for understanding whether adding a prepayment fee might be necessary in the future.
Because of safety and soundness measures like these, WSECU’s RV portfolio constantly performs well on both the direct and indirect side.
“Our indirect RV delinquency is currently 0.26% and we are on pace for an annualized loss ratio of 0.30%,” Lind says. “By comparison, our indirect auto portfolio is at about 0.74 % with an expected annual loss ratio of 1.25%.”
By providing a sustainable, market-tailored financing option in an underserved area of need, WSECU is ensuring that both its members and its balance sheet can keep on trucking for the foreseeable future.