One credit union has found a way to compete with the 0% financing offered by the captive finance companies: let the dealers do the work for you.
"We have found that yes, they're offering 0% on longer terms like 36 months and even 60 months, but what has happened is that the dealers aren't compensated very much for those transactions," said Gary Fee, director of consumer lending at Boeing Employees Credit Union here.
Window of Opportunity
And that can be just the window of opportunity credit unions need to continue to compete with the "new and improved" 0% financing deals being offered by the auto manufacturers' captive finance companies (CU Journal, Jan. 27).
"We have a very large indirect lending operation, about 120 dealers in the state of Washington," Fee explained. "We're finding that some dealers are actually requiring their F&I people to lay down a side-by-side comparison and say, 'Here's the 0% deal, and here's the credit union deal.' They're actually trying to sell the credit union deal over the 0% financing for us."
Why? Because BECU compensates those dealerships better than the financing units of auto manufacturers in some cases, Fee related. "They get more from us than from the captives, so it's in their best interest to sell our deal if they can," he told The Credit Union Journal. "Plus some of those deals are still pretty restrictive, so we're also seeing members coming back to us because they don't qualify for the loan or they only qualify for the 0% at a shorter term that makes the payments cost prohibitive."
Beating out the captives when it comes to compensating the dealer for selling the financing isn't as costly as it may sound, at least not right now, Fee added. "Many of the captives have a set fee of maybe $100 or so," he commented. "The fee we pay is based on the loan amount, so the dealer gets a percentage of that."
Volume Up 25%
The result: while many credit unions are seeing their auto loan volumes move into the slow lane, BECU's auto loan volume increased by 25% in 2002.
"We've focused heavily on used cars, offering the new car rate on any auto with less than 24,000 miles, and that has really helped," Fee related. "Plus, we expanded our field of membership in June, which gave us a big boost in the latter part of the year."