CU Finds Success After Opening Its Own Auto Dealership
While most credit unions are contemplating indirect lending as a way to boost auto loans, City County CU decided it wanted to go direct-very direct.
So direct, in fact, that the $230-million CU now owns an auto dealership and branch rolled into one: AutoBranch.
"Many credit unions have given up on direct lending, but we felt it was in our members' best interest to control the transaction from beginning to end, instead of losing control by going to indirect lending," said Bill Marquardt, CEO of CCCU. The idea was to give members a worry-free car buying experience wrapped in a friendly, CU environment. And the price of the vehicle is guaranteed to be below NADA.
It's in the credit union's best interests, too. "We needed to attract new members," said Lloyd Gill, COO of the state-chartered CU. "Don't forget everybody needs a car, and it's a great way to draw people in. People don't get excited about a checking account, but they do about a car."
But City County knew it couldn't do this entirely on its own, if for no other reason than the regulatory issues.
"We knew our regulator would frown on us actually being the auto dealer, owning the dealer license," Gill explained. "We had a good, long-standing relationship with an independent auto dealer, so we worked with them."
The dealer still owns the dealer license, but CCCU owns the dealership, essentially creating a landlord/owner relationship. "It looks like one entity. We have a rather lengthy operating agreement with them. We own the property and the F&I business; he owns the dealer license and the car stock."
The regulatory issues weren't the only challenges CCCU faced. It also had to create a totally new business model. While there are similar CUSOs in place in Sacramento and another in Denver operated by a third party, City County was essentially striking out on its own.
It solved the lack of auto dealership experience by working with the dealer, and by sending Gill to a one-week Finance & Insurance school. To find the right location and right-sized lot, the CU purchased the site of a former Nissan dealership.
CCCU invited other credit unions to participate, turning AutoBranch into a cooperative loan source for 12 local credit unions that have signed onto the concept.
The combination used car dealership/branch opened Dec. 22, 2003. In the first 11 months of business, Autobranch sold 353 cars. Of those, 207 were CCCU loans totaling $4.4 million; the rest were loans with the other partnering CUs.
And AutoBranch has those partnering CUs' best interests at heart, too. "When someone walks onto the lot, they are identified as a member of one of the credit unions, and we guarantee that credit union gets the loan," Marquardt explained. "This doesn't look like a City County Credit Union branch, it looks like an auto dealership with a shared service center. There are no rate boards, nothing that would be used to entice a member away from his existing credit union."
And the reaction to AutoBranch has been extremely positive, according to those involved. "We survey everyone who comes and does business at AutoBranch, and so far, every one has said they would refer other people to us," Marquardt offered.
In fact, the concept has worked so well that now non-members are walking onto the lot-and joining a credit union in order to buy a car there.
AutoBranch is located in Broward County, Fla., which has a population of 1.5 million people. The facility is located on a heavily trafficked thoroughfare (see photo, page 1).
The credit union said there is another reason is has sought to control the auto buying process-approximately one-third of its membership has a credit score of less than 600.
"We get a lot of people with marginal credit, but because we can trust that the collateral is good, we have a greater opportunity to do the loan," Gill noted. "We know we're lending them a good-quality vehicle, so we make more loans to people with impaired credit."
Although AutoBranch does sell the occasional repo, it is not a repo lot. "Most repos can't get past our inspection, so they wouldn't make it to the lot," Marquardt added.
"Everybody needs a car," Gill commented. "AutoBranch is the credit union solution."
Most of the vehicles sold at AutoBranch are one-to-three years old, and are still under the manufacturer's warranty and have been put through a 128-point inspection and are certified with a clean history and a 7,000-mile buy-back guarantee. AutoBranch holds the trade-in for seven days, and provides a 100-day/300-mile limited warranty that is self-funded.