LAKE BLUFF, Ill.-If credit unions are to go toe-to-toe with competitors on low auto loan rates, they will have to make changes to address the overall car loan yield.
Michael Moebs, economist and CEO at Moebs $ervices, says 2012 will be the "year of the auto loan yield" for credit unions. "The reason is, there will be fees. There have to be."
Moebs asserted that some credit unions will institute application fees, or other charges, to cover some of the costs for lowering rates to keep pace with subvented financing deals coming down the pike-especially from foreign automakers-that will force down rates even further (see related story).
"I think we will see a lot of deals from the German, Japanese, and Korean auto manufacturers," proposed Moebs. "Germany is the only country with the money to pay for the crisis going on in Europe. The Japanese have still not recovered from the tsunami and they have to bring on heavy incentives because they are a huge export nation."
Ancillary Services Considered
In Madison, Wis., Mike Long, EVP and chief credit officer at the $1.5-billion UW CU, conceded that with rates plummeting something has to be done to improve the car loan yield. He said UW will not charge an application fee, as that would not be in members' best interest and would dissuade them from choosing the credit union's loan. However, he indicated the credit union plans to introduce some ancillary services attached to the auto loan this spring.
"The services could be gap insurance, mechanical repair coverage, credit life and disability protection," said Long. "We spent a lot of time this year building our front-line staff's skills to be successful at selling these types of products to members."
Long emphasized the services will only be sold to members who are a right fit and can benefit from the products. He also indicated the credit union plans to add some low- or no-cost services, possibly warranties for used vehicles, the member receives free for a few months. After the trial period the member would pay for the additional coverage.
"This will help differentiate our car loan in our markets," said Long. "If you have a 3.5% rate and the other guy is at 2.9%, members might be willing to pay 3.5% if there is a bundled package of services that come with the rate. If we just compete on rate we will lose every time."
At the San Antonio-based SWBC, Cory Jefferies, VP of business development, said he would not be surprised if credit unions begin looking for ways to subsidize a low auto loan rate, and said SWBC is developing a vehicle-return program for CUs modeled after Hyundai Assurance.
"Maybe wheel protection is tied in too. These types of services have traditionally been offered just by the dealerships, but now credit unions have an opportunity to offer them at a competitive price."
For info: www.moebs.com, www.swbc.com
