Bringing auto lending into the digital age
May 16, 2019 12:06 PM
Drive conference gets in gear
LAS VEGAS--The digitization of auto lending was the big topic as CU Direct’s Drive conference opened in Las Vegas Wednesday. As more than one speaker noted, digitizing is much more than simply taking legacy forms and putting them online, it is an entirely new way of handling the lending process. During the jam-packed day CUNA’s Jim Nussle offered three existential challenges credit unions must overcome, CU Direct’s Tony Boutelle looked at the future of lending, and a group of auto dealers offered a suggestion to increase their sales and credit union loans.
This conference coverage is part of Credit Union Journal's ongoing special report on auto lending, which will run throughout the month of May. Additional coverage can be found here.
This conference coverage is part of Credit Union Journal's ongoing special report on auto lending, which will run throughout the month of May. Additional coverage can be found here.
Longer terms, higher payments
Automobile prices continue to rise, and despite terms reaching as long as 84 months in some cases, the average monthly payment reached all-time high in 2018, rising to $545.
“New cars are expensive,” observed Karl Kruppa, senior automotive solutions consultant for Experian, offering the company's annual "State of the Automotive Market" report, a longtime fixture at CU Direct's Drive conference. He added, “the growth in loan amounts has outpaced the ability of longer terms to keep payments low despite lengthening terms.”
Kruppa offered plenty of numbers to prove his point:
· From Q4 2008 (2.18% of all loans) to Q4 2018 (9.57%) there has been a 338.9% increase in number of loans financed over $50,000
· CUVs and trucks comprise the majority of top leased vehicles, with average lease savings of $138
· The average loan amount increased 30% from Q4 2008 ($23,592) to Q4 2018 ($30.958). Over that same decade, monthly payments shot up 17%, from $466 to $545
· The average loan amount for a used vehicle surpassed $20,000 for the first time in 2018.
According to Experian’s research, CUVs have surpassed full-sized pickups in most financed vehicles as price of pickups increased. Kruppa noted loan terms for new vehicles increased every year 2009 to 2017, before a “slight pullback” last year.
“Interest rates were very low and stable from 2011 to 2016, but they have been rising over the past two years,” he said. “This is another factor leading to rising monthly payments.”
The “subprime bubble” that was much-discussed about 4 years ago did not come to fruition, Kruppa pointed out. He said delinquency rates are about average per historical data: 2.7 million out of 89 million active automobile loans and leases are either 30 days or 60 days delinquent. As reported, while some lenders have seen a recent uptick in auto delinquencies, that has largely not been the case so far for credit unions.
“Loan balances hit a record high in Q1 2019, while credit unions maintained double-digit growth,” he said.
“New cars are expensive,” observed Karl Kruppa, senior automotive solutions consultant for Experian, offering the company's annual "State of the Automotive Market" report, a longtime fixture at CU Direct's Drive conference. He added, “the growth in loan amounts has outpaced the ability of longer terms to keep payments low despite lengthening terms.”
Kruppa offered plenty of numbers to prove his point:
· From Q4 2008 (2.18% of all loans) to Q4 2018 (9.57%) there has been a 338.9% increase in number of loans financed over $50,000
· CUVs and trucks comprise the majority of top leased vehicles, with average lease savings of $138
· The average loan amount increased 30% from Q4 2008 ($23,592) to Q4 2018 ($30.958). Over that same decade, monthly payments shot up 17%, from $466 to $545
· The average loan amount for a used vehicle surpassed $20,000 for the first time in 2018.
According to Experian’s research, CUVs have surpassed full-sized pickups in most financed vehicles as price of pickups increased. Kruppa noted loan terms for new vehicles increased every year 2009 to 2017, before a “slight pullback” last year.
“Interest rates were very low and stable from 2011 to 2016, but they have been rising over the past two years,” he said. “This is another factor leading to rising monthly payments.”
The “subprime bubble” that was much-discussed about 4 years ago did not come to fruition, Kruppa pointed out. He said delinquency rates are about average per historical data: 2.7 million out of 89 million active automobile loans and leases are either 30 days or 60 days delinquent. As reported, while some lenders have seen a recent uptick in auto delinquencies, that has largely not been the case so far for credit unions.
“Loan balances hit a record high in Q1 2019, while credit unions maintained double-digit growth,” he said.
Digital retail trends
From left: Aleks Bogoeski VP strategic alliances for CU Direct, Dan Gill, chief product officer, Carvana; Rudi Thun, COO of Roadster; Craig Nehamen, co-founder and chief operating officer, Fair.
Online auto-buying platforms are beginning to work more closely with credit unions.
“We are just starting dialog with credit unions,” said Craig Nehamen, co-founder and chief operating officer of Fair, a used-car subscription provider founded in 2016. “We think there is a synergy between us and credit unions. If a member does not qualify for a loan at your credit union, they might have to wait six years to try to qualify again. With us there is no term. They can rent a car from us, and maybe try again with the credit union in a few months after they build up their credit.”
Nehman spoke on a panel moderated by Aleks Bogoeski VP strategic alliances for CU Direct, and was joined by executives from Carvana and Roadster.
Dan Gill, chief product officer at Carvana, said his company works with third parties on financing, including many credit unions. “At the beginning no one would look at us, so we had to do our own financing. We have found our customers like self-service and transparency.”
Nehman argued most potential car buyers are researching a number that is not relevant – the price. “Most people care about their payment,” he said. “A holistic number that is realistic is what is empowering to the customer. Digital retail is not about digitizing what we do in retail. Digital retail is a whole new process that does not require forms.”
The panelists agreed the way Americans search for and buy vehicles is shifting. Nehamen said millennials and Gen Z accept transacting on their phones, to which Rudi Thun, founder and COO of Roadster, said, “It is not just millennials, even older folks are used to ordering Starbucks or Chipotle online and picking up at the store. But with younger people you had better be texting them, not calling.”
Similar to members of the dealer panel earlier in the day, Carvana’s Gill said it would help the company gain traction if credit unions would tell it when their members are ready to turn over used cars.
“Yes, please, bring us cars,” he said. “We started by buying vehicles at auction. We now market to consumers that we will come pick up their used car. We are diversifying our supply where we can. Our attraction to credit unions has been the philosophical alignment of the mutual obsession with customer service. We look forward to connecting with any and all of you,” he told the audience.
A common theme that connects the three companies is their focus on the customer journey, noted moderator Bogoeski, who read the executives a definition of digital retailing. He defined it as a connected experience, with the customer in control and having the ability to start and stop, and asked them if they agreed or disagreed.
“I agree with most of that, but pieces are missing,” Thun assessed. “For me, what is important is digitizing every step of the process, which forces you to be transparent. Dealerships struggle with that.”
While the auto-buying process is going increasingly digital, all three agreed the digital element of automobile savings is in its early stages as consumers gradually come around to the idea of buying or renting cars online or on their phones.
Online auto-buying platforms are beginning to work more closely with credit unions.
“We are just starting dialog with credit unions,” said Craig Nehamen, co-founder and chief operating officer of Fair, a used-car subscription provider founded in 2016. “We think there is a synergy between us and credit unions. If a member does not qualify for a loan at your credit union, they might have to wait six years to try to qualify again. With us there is no term. They can rent a car from us, and maybe try again with the credit union in a few months after they build up their credit.”
Nehman spoke on a panel moderated by Aleks Bogoeski VP strategic alliances for CU Direct, and was joined by executives from Carvana and Roadster.
Dan Gill, chief product officer at Carvana, said his company works with third parties on financing, including many credit unions. “At the beginning no one would look at us, so we had to do our own financing. We have found our customers like self-service and transparency.”
Nehman argued most potential car buyers are researching a number that is not relevant – the price. “Most people care about their payment,” he said. “A holistic number that is realistic is what is empowering to the customer. Digital retail is not about digitizing what we do in retail. Digital retail is a whole new process that does not require forms.”
The panelists agreed the way Americans search for and buy vehicles is shifting. Nehamen said millennials and Gen Z accept transacting on their phones, to which Rudi Thun, founder and COO of Roadster, said, “It is not just millennials, even older folks are used to ordering Starbucks or Chipotle online and picking up at the store. But with younger people you had better be texting them, not calling.”
Similar to members of the dealer panel earlier in the day, Carvana’s Gill said it would help the company gain traction if credit unions would tell it when their members are ready to turn over used cars.
“Yes, please, bring us cars,” he said. “We started by buying vehicles at auction. We now market to consumers that we will come pick up their used car. We are diversifying our supply where we can. Our attraction to credit unions has been the philosophical alignment of the mutual obsession with customer service. We look forward to connecting with any and all of you,” he told the audience.
A common theme that connects the three companies is their focus on the customer journey, noted moderator Bogoeski, who read the executives a definition of digital retailing. He defined it as a connected experience, with the customer in control and having the ability to start and stop, and asked them if they agreed or disagreed.
“I agree with most of that, but pieces are missing,” Thun assessed. “For me, what is important is digitizing every step of the process, which forces you to be transparent. Dealerships struggle with that.”
While the auto-buying process is going increasingly digital, all three agreed the digital element of automobile savings is in its early stages as consumers gradually come around to the idea of buying or renting cars online or on their phones.
Mixed reviews for CUs
A panel of auto dealers from across the country offered insights into relations between dealers and CUs – and how things can be improved.
“If you do business with me regularly, list my cars higher on your website than some buy here-pay here lot,” said Scott Stephens, general sales manager for Chapman Auto Group in Las Vegas. “I have spent $25,000 on 20,000 mailers for Memorial Day Weekend. Those are going to random people. I would much rather spend that money to reach credit union members that you know are looking for a car.”
Oliver Young, director of sales and marketing for the Utah-based Young Automotive Group, noted margins are compressing, meaning there is not a lot of difference between the price at various dealers, making volume sales important.
“We want you to let people know we are reputable and we will take care of your members, and we will take care of their maintenance,” he said. “Also, if credit unions could help us find good used inventory to sell to our customers, that would help. Building relationships helps us sell more cars and fund them through credit unions.”
Young added CUs can be a partner in the shift to digital lending, but he insisted they “have to understand” how important the finance piece is to dealer profitability.
“The shopping process should be as slow as people want up front. Even if they shop online, they want to come feel the car – as they should. Once they decide, then the F&I process needs to be fast.”
For more on this story, click here.
“If you do business with me regularly, list my cars higher on your website than some buy here-pay here lot,” said Scott Stephens, general sales manager for Chapman Auto Group in Las Vegas. “I have spent $25,000 on 20,000 mailers for Memorial Day Weekend. Those are going to random people. I would much rather spend that money to reach credit union members that you know are looking for a car.”
Oliver Young, director of sales and marketing for the Utah-based Young Automotive Group, noted margins are compressing, meaning there is not a lot of difference between the price at various dealers, making volume sales important.
“We want you to let people know we are reputable and we will take care of your members, and we will take care of their maintenance,” he said. “Also, if credit unions could help us find good used inventory to sell to our customers, that would help. Building relationships helps us sell more cars and fund them through credit unions.”
Young added CUs can be a partner in the shift to digital lending, but he insisted they “have to understand” how important the finance piece is to dealer profitability.
“The shopping process should be as slow as people want up front. Even if they shop online, they want to come feel the car – as they should. Once they decide, then the F&I process needs to be fast.”
For more on this story, click here.
Who's the real competition?
Too many credit unions consider other credit unions as their competitors rather than the big banks – and that movement away from collaboration and cooperation represents one of the major existential threats threatening the movement today, said Jim Nussle, president and CEO of the Credit Union National Association.
“We need to work together,” he said during a speech outlining the trade group’s “Open Your Eyes” awareness campaign. “We need to recommit to our powerful, differentiating, cooperative principles of our movement. If we try to do it alone, we can be picked off. If we want our model to be able to serve members in the future, we have to work together.”
At a larger level, he said, the industry is under attack.
Nussle acknowledged the CU model has always been under attack in some ways, but he argued in recent years the attack has become multi-pronged. The Consumer Financial Protection Bureau, he said, has “thrown a pall” on all financial services, particularly on CUs, which already have consumers in mind. Banks, he continued, used to only attack CUs in Washington, D.C., but now they are attacking the credit union tax exemption on a state-by-state campaign – first in Iowa, then South Dakota, Kentucky and Connecticut in the past two years.
“The banks are hoping to start a brushfire that will burn across the country and burn credit unions,” he declared. “Community banks are suffering from many of the same problems we have, so they are lashing out at us and attacking our tax status. But we are not the cause of community banks’ problems, big banks are.”
The marketplace also remains a challenge, Nussle continued. He said Capital One is “trying to be a donut shop that sells coffee and has comfortable couches,” and avoids talking about actual banking in its commercials.
“It is an interesting approach,” he said ironically. “Any bank commercial you see today is doing everything it can to sound like a credit union: talking about helping communities. Small community banks are getting their lunch eaten, and not by credit unions – by large banks.”
The top 100 banks had 75.4% market share in 2017, while credit unions had 7% market share. Nussle said banks have “bought back their reputation” and have caught up with CUs on consumer satisfaction by outspending credit unions $43 to $1 on marketing and advertising. The top five banks each spend more than $1 billion each year, he noted.
CUNA’s Open Your Eyes campaign, he said, aims to change perceptions around credit unions.
“To my generation, the word ‘member’ conveys value. You get to be a member,” Nussle said. “But when my son and daughter hear ‘member’ they think they have to buy something, or are going to be trapped in a contract they can never get out of, such as a gym membership or a cable contract. We need to explain the concept of membership differently so people understand.”
“We need to work together,” he said during a speech outlining the trade group’s “Open Your Eyes” awareness campaign. “We need to recommit to our powerful, differentiating, cooperative principles of our movement. If we try to do it alone, we can be picked off. If we want our model to be able to serve members in the future, we have to work together.”
At a larger level, he said, the industry is under attack.
Nussle acknowledged the CU model has always been under attack in some ways, but he argued in recent years the attack has become multi-pronged. The Consumer Financial Protection Bureau, he said, has “thrown a pall” on all financial services, particularly on CUs, which already have consumers in mind. Banks, he continued, used to only attack CUs in Washington, D.C., but now they are attacking the credit union tax exemption on a state-by-state campaign – first in Iowa, then South Dakota, Kentucky and Connecticut in the past two years.
“The banks are hoping to start a brushfire that will burn across the country and burn credit unions,” he declared. “Community banks are suffering from many of the same problems we have, so they are lashing out at us and attacking our tax status. But we are not the cause of community banks’ problems, big banks are.”
The marketplace also remains a challenge, Nussle continued. He said Capital One is “trying to be a donut shop that sells coffee and has comfortable couches,” and avoids talking about actual banking in its commercials.
“It is an interesting approach,” he said ironically. “Any bank commercial you see today is doing everything it can to sound like a credit union: talking about helping communities. Small community banks are getting their lunch eaten, and not by credit unions – by large banks.”
The top 100 banks had 75.4% market share in 2017, while credit unions had 7% market share. Nussle said banks have “bought back their reputation” and have caught up with CUs on consumer satisfaction by outspending credit unions $43 to $1 on marketing and advertising. The top five banks each spend more than $1 billion each year, he noted.
CUNA’s Open Your Eyes campaign, he said, aims to change perceptions around credit unions.
“To my generation, the word ‘member’ conveys value. You get to be a member,” Nussle said. “But when my son and daughter hear ‘member’ they think they have to buy something, or are going to be trapped in a contract they can never get out of, such as a gym membership or a cable contract. We need to explain the concept of membership differently so people understand.”
Omnichannel lending
The future of automobiles is autonomous vehicles, which will completely disrupt the model of car ownership and, therefore, credit union auto lending…but that future is not coming tomorrow.
That was the message from Tony Boutelle, president and CEO of CU Direct. He said four key drivers will bring about a switch to autonomous vehicles: safety, cost of ownership, economic benefits and societal benefits – but change will take time.
“This is something that is going to continue, but it will be five years before we see any impact on lending, and more likely 15 years to have a big impact. But it is going to happen,” he warned.
Meanwhile, Boutelle said the near-term focus for CU Direct is the new era in digital lending. He said the company – which through its partnership with credit unions comprises one of the nation’s largest networks of auto lenders – is re-imagining how technology is changing the end-to-end workflows and processes associated with making a loan.
“Digital lending moved paper to the Internet, and the next step is pre-filled documents that make a better experience for members and make things easier for your back office,” he said. “Consumer expectations are increasing – everyone wants fast and faster, and they want a human touch. How to provide a human touch digitally? CU Direct is building systems for digital loan applications with help available every step of the way.”
The company is embracing an an “anytime, anyplace, any channel” approach to lending, with a unified, intuitive experience to increase efficiencies through products that automate AI, analytics and cloud-enabled lending.
“We are building an enterprise origination platform that incorporates a network and platform, and it is called Origence,” Boutelle said, noting the name is a combination of origination and experience. “Several credit unions are involved in the development process. This is designed to be seamless from application to fulfillment. We can close a loan digitally to the device of the borrower’s choice.”
That was the message from Tony Boutelle, president and CEO of CU Direct. He said four key drivers will bring about a switch to autonomous vehicles: safety, cost of ownership, economic benefits and societal benefits – but change will take time.
“This is something that is going to continue, but it will be five years before we see any impact on lending, and more likely 15 years to have a big impact. But it is going to happen,” he warned.
Meanwhile, Boutelle said the near-term focus for CU Direct is the new era in digital lending. He said the company – which through its partnership with credit unions comprises one of the nation’s largest networks of auto lenders – is re-imagining how technology is changing the end-to-end workflows and processes associated with making a loan.
“Digital lending moved paper to the Internet, and the next step is pre-filled documents that make a better experience for members and make things easier for your back office,” he said. “Consumer expectations are increasing – everyone wants fast and faster, and they want a human touch. How to provide a human touch digitally? CU Direct is building systems for digital loan applications with help available every step of the way.”
The company is embracing an an “anytime, anyplace, any channel” approach to lending, with a unified, intuitive experience to increase efficiencies through products that automate AI, analytics and cloud-enabled lending.
“We are building an enterprise origination platform that incorporates a network and platform, and it is called Origence,” Boutelle said, noting the name is a combination of origination and experience. “Several credit unions are involved in the development process. This is designed to be seamless from application to fulfillment. We can close a loan digitally to the device of the borrower’s choice.”
