Credit unions are affecting dealership finance and insurance practices. With relaxed membership requirements and growth in their indirect lending efforts, credit unions are an F&I source that automotive retailers now consider.
Not long ago, a credit union loan meant one of their members had walked into the dealership finance with a pre-approved draft for a vehicle purchase. At that point the F&I manager would try to flip the customer into a loan with one of his regular lenders, in hopes of capturing a flat payment rather than losing the deal.
Today, many credit unions take the approach that it makes more sense to work with dealers than be adversarial. Many have created indirect programs that provide dealerships with opportunities to make money and sell more vehicles.
Some aspects of the relationship require deeper examination.
Credit unions have a competitive advantage over regular banks in that they do not pay state or federal income tax, since they are non-profit organizations owned and managed by their members.
Membership rules have eased in recent years making signing new customers easier. As a result, almost every customer that walks into a dealership is instantly eligible for credit union membership somewhere.
Some areas worth examining:
Many credit unions now offer indirect lending, working directly with dealerships in addition to their traditional direct-to-consumer model. This allows dealerships to have relationships with credit unions, and new members to be signed up at the dealership.
Aggregators such as Credit Union Direct Lending work with multiple credit unions sources. An automated application transmission system enables electronic access to all credit unions in a way similar to how Dealer Track works for traditional lenders.
Credit unions often offer aggressive credit terms and substantial advance parameters. It is not unusual to hear stories of credit unions still buying customers with FICO scores in the 400s, at lower rates than traditional lenders usually offer.
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Credit unions offer leasing options along with service contracts and GAP insurance.
There are still some areas that warrant caution, however:
Credit union membership is still required for a loan. While it's easier to qualify, the credit union may require the dealership's customer to open a checking or savings account with the credit union. Some also require automatic payment withdrawal. Some customers may not like this. In addition, some credit unions still retain the right to attach savings and other accounts if a customer defaults on a loan. Be certain to find out the credit union's policies regarding these volatile issues.
What happens with the dealership's customers after they have been sent to the credit union? Are they now the credit union's customer? Or do they remain the dealership's? Almost all captive finance companies, and many national lenders have customer retention programs in place that direct the customer back to the dealership. This is an important factor that a finance manager simply looking to get a loan done may overlook. But a dealer principal must consider it.
Traditional lenders should consider taking steps to address the inroads that credit unions have made.
By strengthening and further developing their relationship with the dealership and the end consumer, lenders can maintain their current status as the primary lender in most cases.
Traditional lenders need to examine their behavior, and consider adopting some of what credit unions are doing in order to maintain their relationship and ranking with dealerships.
Bryan Dorfler is an F&I consultant. E-mail: [email protected]
