JACKSONVILLE -
The second-largest auto lender in northeast Florida is doing it because it's no longer in the best interests of members, said CEO John Hirabayashi. "We looked at indirect auto lending and saw that only 6% to 8% of these members ended up using other credit union products and services. There is a big difference between those who join to get an auto loan and those who get an auto loan and have to join," said Hirabayashi. "It's a different frame of mind."
The most significant factor, he said, was how Community First wanted to serve its members. "We see ourselves as cultivating deeper relationships and building member loyalty. We'd rather put all our effort and focus into doing that because we see that as in the best interests of members."
Losses are higher for indirect loans, he said. "Even at a given credit score, say a Beacon 680, if one person joined the credit union and the other is an indirect loan member, the trend still shows the risk is higher. Also, when you are not the one taking the application, the losses are higher. Finally, with pricing, the dealer gets a percentage of the interest rate or a flat fee," noted Hirabayashi. Community First paid a flat fee of between $100-$150 per loan, rather than a percentage, he added.
Loan delinquencies weren't a factor in dropping the indirect program. Hirabayashi said that the total auto portfolio is now $216 million. Of that delinquencies were only about $2 million.
The indirect program also presented a conflict with the CU's role of trying to be the member's advocate in the making of large purchases. "At the dealership, we had no say in that," Hirabayashi said. Ancillary sales such as car insurance were also diminished by the indirect method.
The CU won't give up on indirect borrowers, and it is possible to make true CU members of indirect borrowers, Hirabayashi said. "We'll certainly try. For example, after 18 months (when many buyers think of trading up to newer models) the CU will send a pre-approved car loan application." There will also be direct mail and the usual CU newsletter and statement stuffers.
What the CU will do to try to recapture as much of any potentially lost loans (and grow wallet share) is to step up its own direct auto lending program and increase its marketing efforts, he said. "We're doing quite a bit of that. Also, we never held a car sale ourselves, but we're doing a huge one in April on our premises. It's being organized by Auto Advisors." Auto Advisors is an auto locator service that will negotiate the price of a car and even, if requested, accompany the member to the dealership to complete the transaction.
The point is to position the CU as the place to come first when thinking of buying a car, Hirabayashi said.
