How To Bounce Back When Your Auto Portfolio Bottoms Out

When indirect lending margins at Orange County’s Credit Union started to shrink, the $1.2 billion cooperative injected life into its auto portfolio with a new focus, a fresh marketing campaign, and different metrics.

Orange County’s Credit Union ($1.2B, Santa Ana, CA) had an active indirect lending auto program until 2007; that’s when the country entered a recession and margins on the credit union’s portfolio began to shrink. During its 2007 strategic planning, the credit union’s board and senior management team determined OCCU needed to focus its efforts on organic growth i.e., direct lending to better serve its members, as the run-off from its indirect portfolio was detracting from its total membership.

The yield curve was so inverted that an indirect program just didn’t make sense for us, says Jeff Harper, vice president of lending at Orange County’s Credit Union.

OCCU_loansFrom 2007 to 2014, the ratio of indirect loans to total auto loans at credit unions nationally increased from 41% to 49%. Orange County’s ratio, however, fell from 39% to 4%, according to Callahan Associates. In the two years spanning 2008 and 2010 alone, Orange County’s auto loan portfolio plummeted to $108 million from $204 million.

So the credit union used an intertwined strategy that is one part metrics and one part marketing to inject some life into its lending.

In 2011, Orange County’s increased direct originations by more than 70% compared to 2010; it has posted 10-20% growth in originations every year since. During the past few years it has also bundled more member-friendly products such as GAP, MRC, and payment protection to drive non-interest income. Its portion of non-interest income to total income was 32.7% as of third quarter 2014. By comparison, it was 27.2% for credit unions with more than $1 billion in assets and 25.9% for credit unions in California.

The Right Metric Makes The Difference

When Orange County’s decided to focus on direct auto lending, it needed new goals and metrics. An initial goal included increasing its look-to-book ratio; that is, it wanted to ultimately fund more applications that matriculated through its lending system.

In the beginning we didn’t have a strong benchmark to go after, Harper says. We just focused on how we were going to pull through more applications. The look-to-book ratio became our staple of how we were going to grow production.

Average credit unions run a look-to-book ratio of approximately 40%; for top performers, it’s closer to 50%, Harper says. Orange County’s decided to aim to be a top performer.

Convenience and decisioning speed are two key components that contribute to a higher pull-through for auto loan applications. To show members how easy it is to work with OCCU, in 2011 the credit union started promoting its existing e-signature capability. Instead of making an appointment in the branch, borrowers could close loans quickly and easily from a remote location.

The look-to-book ratio became our staple of how we were going to grow production.

OCCU is currently converting to a new loan origination system that will increase decisioning speed. On the front end, the new system features a simple, easy-to-use origination process that will allow staff to focus on conversations with members. On the back end, the credit union anticipates the system’s decision engine will provide automated decisioning for at least 50% of applications. Harper expects the system to go live in June 2015.

But the credit union cannot rely on convenience and decisioning if it doesn’t have a properly trained team all working toward the same goal. To empower and build employees, OCCU created its LIFE training program: L Leaders at all levels, I Inspiration in the community, F Fanatic about the fundamentals, and E Extraordinary in the ordinary. LIFE develops and encourages leadership across all jobs and functions. Through LIFE, participants learn how to compete for auto business across the organization and learn why it’s everyone’s job, not just lending’s, to provide value to the auto-lending program. Read more about LIFE on

These efforts, and more, are having the desired effect on OCCU’s look-to-book ratio. Although the third quarter year-to-date number of applications increased only 2.0% over last year, funded loans increased almost 12%. OCCU’s look-to-book ratio has increased steadily each year from 41% in 2012, to 43% in 2013, to 44% in 2014.

Shrink My Debt

In addition to convenience and speed, Orange County’s Credit Union needed to make some noise in its Southern California market. It targets A and B credit borrowers that want to buy a car or refinance loans held at other institutions and sends pre-approvals every quarter through direct mail, email, and online banking. But it needed something more.

ShrinkMyDebt_carIn February 2012, Orange County’s launched Shrink My Debt for mortgage, auto, and credit cards. The marketing campaign is composed of a micro site, a team of credit union ambassadors, and a small fleet of five leased smart cars four coupes and one convertible wrapped with Shrink My Debt branding.

OCCU understands the needs of its members, and the Shrink My Debt concept was born out of a conversation between Harper and assistant vice president of marketing Teresa Koch about how Orange County’s could help members deleverage their debt load. The credit union hired a research firm to study consumer sentiment about financing and started forming focus groups in January 2011 to test the research and iron out the details of the marketing campaign.

We found out some of our members did not realize they could refinance auto loans, Harper says.

In the post-recession environment, several factors came together to create an ideal refinance market, Koch says. First, OCCU’s consumer research indicated consumers were more interested in paying down debt rather than taking out new loans; second, the low interest rate environment was predicted to last through 2012 and beyond; and third, unhappy consumers were looking for a trusted source with whom to refinance.

ShrinkMyDebt_rateOCCU’s current rates as low as 1.99% for auto loans are half of what they were a few years ago, and a lot of members who took out loans at the higher rate still have enough years left on the loan to make it smart to refinance, Harper says. The credit union found it could save the average member $700 in interest over the remaining life of the loan if the member refinanced.

A lot of members don’t understand the rate, but they understand the payment, Harper says. We try to emphasize the savings. What could they do with that $700? We started to promote the ideas, you could buy a TV, you could take a mini vacation.

To estimate how much they can save, members can use the calculators (see below) that the credit union worked with a third party to customize with the appropriate rates and branding language. Consumers enter their current rate and their potential rate and the calculator returns the decrease in monthly payments and how much the consumer will save over the remaining term of the loan.



Aside from reducing its Shrink My Debt cars from five to one it purchased the convertible and uses it for parades, employer group events, and community activities OCCU plans to continue the campaign pretty much unchanged in 2015.

Its current efforts have helped it sustain a consistent 5% to 6% annual membership growth ratio of solid, participating members without relying on new members that come from indirect lending or mergers, so why fix what’s not broken?

We’ll definitely do a splash with Shrink My Debt in the new year, Koch says. People will be in the New Year’s resolution mode and trying to get their financial health in order.

5 Smart Lessons From Shrink My Debt

Shrink My Debt has helped Orange County’s Credit Union reinvigorate a waning auto portfolio. Here are five ways any credit union can do the same.

  1. Be seen. OCCU’s PR ambassadors drove branded smart cars in the evenings and over the weekends. Staff ran errands in them and leveraged traffic patterns to maximize visibility. Smart cars catch one’s attention, says vice president of marketing Teresa Koch. Wrapped smart cars even more so.
  2. Be ready. The cars were a great conversation starter, Koch says. And to make sure staff made the most of impromptu interactions, the credit union armed them with interesting facts about smart cars as well as lenticular cards to hand out.
  3. Track expenses. Recordkeeping is an important part of being a PR ambassador. They log their business and personal miles and note any time spent on the clock.
  4. Budget smartly. The total cost for the lease, gas, and insurance cost OCCU approximately $750 per month per smart car. Plus the credit union invested $1,400 per car upfront for the wrap. For the larger Shrink My Debt campaign, the credit union invested roughly $85,000. Costs included the fleet of smart cars, the micro site and calculators ($12,500), and window wrapping at the branches ($9,000) as well as miscellaneous branded materials.
  5. Use all available resources. Putting together the campaign was a comprehensive collaborative effort, Koch says. Shrink My Debt touched more than a half-dozen departments, including: consumer and mortgage lending, retail, accounting, risk management, HR, executive management, and marketing.
January 26, 2015

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