The Driving Force Behind American 1’s Auto Lending

Nearly two-thirds of the credit union’s loans have four wheels. What are the keys to success for this mid-size Michigan cooperative?

 
 

Top-Level Takeaways

  • American 1 holds 63% of its loan portfolio in autos — that’s more than double the national average.
  • Operations, programs, and adaptability all have helped the credit union become a first-choice auto lender in its market.

Take a look at the loan portfolio of American 1 Credit Union ($552.1M, Jackson, MI), and it’s clear the cooperative is laser-focused on consumer loans.

In the first quarter of 2021, the credit union held approximately 63% of its loan portfolio in autos — the vast majority of that being used — and 22% in credit cards. On the auto front, that’s 30 percentage points higher than the national average. Its credit card concentration bests the national average by 17 percentage points.

In a year when the pandemic complicated consumer lending, American 1 stood apart from the pack. Its exemplary auto loan performance, in particular, stems from a strategy many years in the making.

“We want to serve as many people as possible,” says Marla Sanford, vice president of marketing and communications. “That means doing smaller, faster loans. We can help more people without tying up our lending power for the long term.”

Marla Sanford, VP of Marketing and Communications, American 1 Credit Union

The credit union assumed a number of mortgages during two mergers in 2011. Other than those, however, American 1 doesn’t make mortgage loans. It doesn’t participate in business lending, either. Instead, the credit union has positioned itself as an everyday lender vying to provide three things: an auto loan, a credit card, and a checking account.

“We call ourselves the auto loan experts,” Sanford says. “We’re usually the institution members and non-members think about when they want an auto loan.”

Becoming a first-choice auto lender was not as simple as turning the ignition, however. The strategy required operational focus, a strong network of dealers, and a creative approach to sales.

Hustle For Autos

American 1’s average auto loan in the first quarter of 2021 was approximately $13,600. April 2021 data from Zillow shows the average home value in Jackson, MI, was nearly $150,000. Based on that data, the credit union could make slightly more than 10 auto loans for every one mortgage loan. Put another way, American 1 can serve more members via auto lending.

“If you have $100,000 to lend, you can serve one member with a mortgage or 10 with an auto loan,” says Janelle Merritt, vice president of community partnerships. “It’s our philosophy to allocate our dollars in a way that best serves every potential American 1 member.”

Janelle Merritt, VP of Community Partnerships, American 1 Credit Union

It’s also the credit union’s philosophy to avoid indirect auto lending altogether. Doing so allows American 1 to offer a lower rate rather than charge a higher rate to cover dealer incentives. In the first quarter, American 1’s median loan rate for new and used auto loans was 1.99%. At Michigan credit unions, those rates were 3.47% and 4.61%, respectively.

In addition to lower rates, American 1’s direct lending strategy also provides better pricing transparency than indirect lending as well as offers the opportunity to talk to borrowers about their financial needs.

According to Merritt, direct lending tends to engender deeper loyalty to the credit union, too. In an indirect relationship, the borrower learns who the lender is when the first bill comes due. Conversely, direct lending establishes a relationship between borrower and lender right from the start, allowing American 1 to talk openly with members for the life of the loan.

“If you have $100,000 to lend, you can serve one member with a mortgage or 10 with an auto loan. It’s our philosophy to allocate our dollars in a way that best serves every potential American 1 member.”

Janelle Merritt, Vice President of Community Partnerships, American 1 Credit Union

“We can have a more effective conversation with these members and protect them from what they can and can’t see,” Merritt says.

Protection can take the form of gap or disability insurance, deposit accounts, a credit card, or another personal loan. Notably, American 1 members hold 2.72 deposit and loan accounts on average — higher than the average for the credit union’s asset, state, and local peers. That kind of cross-selling is important because loans at American 1 tend to turn over quickly — 2.5 years on average, according to the credit union.

“We have to hustle harder,” Sanford says. “We have big loan months, but the turnover can be quick.”

To service all that activity, the credit union employs 186 full-time equivalent employees and operates 16 branches. Respectively, that’s 28% and 89% greater than its asset-based peer averages. The credit union is open until 7 p.m. every weeknight except Saturday, when it stays open until 4 p.m., and it offers a full suite of contact options through which members may ask questions.

“We aim to be accessible while offering expertise,” Merritt says. “It helps us maintain consistency across the organization.”

CU QUICK FACTS

American 1 Credit Union
DATA AS OF 03.31.21

HQ: Jackson, MI
ASSETS: $552.1M
MEMBERS: 59,576
BRANCHES: 17
12-MO SHARE GROWTH: 29.0%
12-MO LOAN GROWTH: 4.9%
ROA: 0.52%

The Happiest Place For Auto Sales

When it comes to direct lending, the importance of American 1’s car sales program cannot be overstated. The Michigan cooperative has run some version of the program for several decades. The events are a significant undertaking on the marketing and coordination front, but they are huge drivers of auto loans for American 1.

The credit union usually hosts three or four car sales every year. In one particularly aggressive year, it hosted seven. According to Sanford, the marketing and communications VP, the credit union has coined that year “The Year of Car Sales” and will never do that many again.

For a typical event, the credit union invites four or five local auto dealers to bring a large stock of cars to a central shopping location where interested buyers can shop until they drop. Car sales last three to four days, and daily hours regularly extend past the posted closing time.

“My favorite way I’ve heard a member describe it is Disney World for car shoppers,” Merritt says.

American 1 doesn’t pay the dealers to participate because dealers know the number of sales generated from one of these events outstrips opportunities offered by other potential partners. Before the pandemic, car sale weekends generated nearly $2 million on average in auto loans for American 1.

The credit union staffs each day of the sale with 40 employees ranging from loan officers and underwriters to event planners and marketing folks. But it’s the prep work that requires the attention of the entire organization.

Marketing designs billboard, radio, and other advertisements while branch staff drums up interest and secures pre-approvals.

“They work hard to get members pre-approved before the event,” says Christopher Zegarlowicz, American 1’s lending manager. “We make the sale as smooth as possible. All members have to focus on is picking out the car of their dreams.”

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This article is excerpted from “Anatomy Of American 1 Credit Union” featured in the first quarter issue of Callahan’s Credit Union Strategy & Performance. Click here to download an issue of the industry's only strategy-oriented publication.

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