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Auto Buying Is Quickly Evolving … Are You?

Future growth in direct auto lending lies in leveraging remote channels and new technology.

Today’s credit unions have access to deposits that are cheaper than ever before. So why isn’t it easier to make money off of these low-cost deposits? Most credit unions are findingit harder, not easier, to get these funds into the hands of borrowers instead of into low-yielding investments. While a few credit unions have figured it out, most are still fighting hard for loan business.

Traditionally, credit unions’ bread and butter has been auto lending, but times have changed. With the majority of loan volume typically comingfrom the indirect channel, credit unions have to work harder to capture their share of the auto loan market. How do smaller credit unions 6,000 of which are under $100 million in assets get their share?

Auto Buying is Evolving Rapidly

Several trends are changing how credit unions define their direct lending strategies. First, consumers are buying more cars online. Not surprisingly, a 2011 Cap Gemini study reported members’ comfortlevel with buying a car online has grown dramatically over the last 10 years. In addition, according to a 2011 Manheim report, 30% of members will buy a car from a private seller not a dealer. Contrary to popular belief, craigslist hasthe vast majority of the private sale listings online. What if credit unions could providemembers with a branded private salealternative to meeting a stranger in a random parking lot at 8 pm?

Second, because of changes in consumer behavior, dealers are shifting their focus to online sales in hopes of not just selling more cars, but more auto loans. A recent survey of Autotrader.com inventoryshowed that less than 10% of the used car listings originated from consumers. Profit pools from used cars, service contracts, and lending are only accelerating this trend. According the National Automobile Dealers Association’s 2011 statistics,auto dealers make little to no profit in new cars. Therefore, they aggressively try to capture auto loans by matching or beating credit union loan rates. Also, they continue to sell GAP> insurance and extended warranties for twice the price of credit union products costing members another $2,000 – $4,000 on average. What if credit unions could help their members buy and sell vehicles at the private sale price and save thousandson the warranty too?

Image Courtesy of Members Private Sale

Save Member Thousands and Grow Direct Lending

Many credit unions have dealt with soft direct lending performance by creatingindirect lending programs. Unfortunately, this has created its own set of problems. First, indirect loans have 2.5 times the default rate of direct loans. Secondly, credit unions lose the opportunity to create a relationship with their members. Finally, credit unions lose the income opportunity from upselling GAP and extended warranties.

Additionally, remote delivery trends suggest future loan growth will come from the call center and website.These channels are especially important for the Gen-Y buyers. If today’s credit unions want high volume auto loan business, it will have to come from their remote channels. That business is not going to walk into branches anymore.

Credit unions that do leverage these trends will also find they’re better serving their most valuable asset their members.

Learn more about improving your direct lending capabilities by registering now for Members Private Sale’s free webinar Auto Buying Is Quickly EvolvingAre You? on October 25th at 11am CDT. This webinar will be presented by Innovators of Change President Pierre Cardenas and Brian Cahak, CEO of Members Private Sale, an industry innovator in emerging technologies to help credit unions increase direct loans, deepen member relationships, and manage loan officer performance.
This article is sponsored by a recognized solutions provider in the credit union industry. Callahan & Associates does not endorse vendors or the solutions they offer, and the views and opinions offered here might not reflect those of Callahan. If you are interested in contributing an article on CreditUnions.com, please contact the Callahan team at ads@creditunions.com or 1-800-446-7453.
April 24, 2014

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