CUs Must Brace For Next Generation Of 0% Deals

The 0% APR loans from the auto manufacturers have taken a bite out of credit union lending, and it appears the bite is going to get bigger.

During CUNA Mutual's Discovery Conference here last week, CEO Mike Kitchen told credit unions they had better start getting ready for 0% financing to be extended beyond new vehicles to used vehicles, as well.

That's not good news for credit unions that have tried to compensate for declining share of the new car loan market by marketing their financing on used vehicles.

"I've been very concerned about lending," Kitchen cautioned. "Things do not look pretty."

If there is a saving grace for credit unions, Kitchen suggested it will have to be found in leveraging the movement's cooperative spirit to drive down production costs related to loans. "We have to understand that we're small players in this industry," he told the audience. "When we got into mortgages, the cost of acquiring a mortgage was $135, now we're hovering at about $70. But the big guys are at $55, and there are still credit unions out there going it alone at about $200."

With all the hype about the non-traditional competitors getting into financial services, like Wal-Mart and Circuit City, it's easy to lose sight of the more traditional competitors, and that can be dangerous, as well.

"Over the years, credit unions have moved away from certain kinds of lending," observed CUNA Mutual Group Financial Consultant Tim Gardner. "We've moved away from signature loans, credit cards and other unsecured loans in favor of real estate and auto laons. We love to make secured loans-the problem is, so does everyone else."

With such hot competition for secured loans, GE Capital, most well-known for its auto financing, is looking to get into unsecured loans, he commented.

"GE says it's going to start making signature loans," he counseled. "They're going to send a check to you in the mail, you sign the back of it and take it into your credit union and , BAM!, you've got a loan."

For credit unions to compete in this environment, they will have to find ways to develop long-term relationships with the members, using things like relationship pricing, and learn to put all that data they collect on their members-as well as on their own products and services-to determine how to capitalize on the "CU Difference," Gardner and Kitchen agreed.