Buying a car process can be an arduous, time-consuming task for members. For credit unions, the process includes many touch points during which they can lose member financing, especially when members shop at dealerships that have tenuous relationship with the cooperative.
To retain more point-of-sale business, the following three credit unions pre-approve members and provide them with a physical check to present at the auto dealership. The auto drafts give members more confidence in the buying process, keep them on a predetermined budget, and reduce the likelihood they take out financing elsewhere.
Although auto drafts are similar from one credit union to another, State Employees’, Digital Credit Union, and Suncoast Credit Union have tweaked the concept to provide maximum benefit to all parties. Here, they share what makes their auto draft programs successful. ContentMiddleAd
Confidence On Nights And Weekends
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State Employees’ Credit Union
Data as of 12.31.15
HQ: Raleigh, NC
12-MO SHARE GROWTH: 7.9%
12-MO LOAN GROWTH: 9.3%
State Employees’ Credit Union ($31.8B, Raleigh, NC) introduced its Auto Power program in May of 2013 to improve member service. Initially the program was dedicated solely to new vehicle purchases, but in August 2014, SECU incorporated used vehicles as well.
Recognizing that most of its members were shopping for cars at night and on the weekends, SECU needed a way to provide immediate purchasing power to members after hours.
We have a contact center that can take and approve the application, but the money is sometimes not instantaneous, says Stacie Walker, the credit union’s senior vice president of loan origination services.
When a member walks into one of the credit union’s 255 branches looking for an auto loan, they speak with a loan officer about their payment options. The officer runs a credit check and presents the member with a pre-approval check with a maximum loan amount although the checks have a maximum amount, SECU does not limit how much it will pre-approve.
The check is good for 60 days and requires two conditional endorsements, one from the member and the other from the dealer. By signing, dealers signify they understand the one-page set of accompanying instructions that outline what to do with the check and how to complete the process from there, Walker says.
At its most basic level, the instructions explain to dealers what SECU will cover current, previous, or upcoming year models with 10,000 miles or less on odometer and used vehicles and what kind of vehicles the pre-approval doesn’t cover salvaged, flood, or reconstructed vehicles, RVs, motorcycles, boats, ATVs, and commercial vehicles, among others.
In January 2016, approximately 10% of its total auto originations came through Auto Power, which is consistent with the 9-10% it sees in an average month, according to Walker.
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Working Relationships With Dealer Partners
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Digital Credit Union
Data as of 12.31.15
HQ: Marlborough, MA
12-MO SHARE GROWTH: 12.8%
12-MO LOAN GROWTH: 8.8%
Unlike SECU, which does not participate in indirect lending, Digital Credit Union ($6.8B, Marlborough, MA) has relationships with approximately 400 local dealerships.
DCU started offering its Auto Loan Check in the late 1990s, before it became an indirect lender, to make the buying process easier for members and to reduce the number of approved loans lost at the dealership.
Today, members can request an Auto Loan Check in-branch or online either before or after applying for a loan. They fill out the check by providing information about the repayment method, vehicle information, and the loan amount. Both the member and the dealer must endorse the check. After it clears, the credit union establishes the loan with the member. According to Debbie Taverna, the credit union’s vice president of consumer lending, Digital originates 5% of its total auto originations through Auto Loan Checks.
Although flipped loans at the point of sale are infrequent, Taverna says, the credit union does face other kinds of hurdles with some local auto dealers.
A handful of dealers either do not accept our check or delay delivery of the vehicle until the check clears, she says. DCU’s front-line branch staff tells members about these dealers and allows them to make the final shopping decision.
To grease the wheels for more amicable relationships, Digital compensates its dealers. For example, if a member applies for funding through the indirect channel at the dealership and then presents an Auto Loan Check to finance the car, Digital pays the dealer a flat $100.
We want to maintain a good working relationship with our dealer partners, Taverna says.
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An Auto Loan Rebate
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Suncoast Credit Union
Data as of 12.31.15
HQ: Tampa, FL
12-MO SHARE GROWTH: 15.2%
12-MO LOAN GROWTH: 15.2%
Suncoast Credit Union($6.9B, Tampa, FL) has offered auto drafts, called Suncoast Drafts, for more than 15 years. The auto draft option gives members the negotiating power to secure the best price on a car and makes sure members shop for vehicles in the price range they can afford.
Everything we implement at Suncoast is with the member in mind, says Lisa Johnson, vice president of loan administration and compliance at the credit union. Auto drafts allow for member flexibility and staff efficiency. They also ensure we remain competitive in the marketplace.
In offering auto drafts, Suncoast aims to improve the speed of decisioning as well as offer competitive rates, which are as low as 1.75% APR. In addition, members who use a Suncoast Draft to purchase a new or pre-owned auto or Harley Davidson receive a $200 loan rebate.
Some loans do not qualify for the rebate, including a refinance of an existing Suncoast loan, loans financed at or through a dealer, and indirect loans. And the rebate is valid only on autos or Harleys 2006 or newer.
We do our best to educate Suncoast members about their options and are available for any questions they have throughout the process.
Today, the Suncoast Draft accounts for what Johnson calls a vast majority of our purchase portfolio. And the increased convenience combined with member education has helped reduce dealer flipping.
We do our best to educate Suncoast members about their options and are available for any questions they have throughout the process, Johnson says.
This article appeared originally on CreditUnions.com in March 2016.