ARLINGTON, Va.-The relationship between credit unions and auto dealers has always been delicate at best, acrimonious at worst.
Credit unions must constantly compete to keep from being elbowed aside by bigger banks and the manufacturers' captive finance arms to get a shot at deals, and then worry that the deals they do get are just C and D paper.
Dealers lament many buyers aren't eligible to join a credit union, which means extra work to find a CU lender when the buyer is sitting in the showroom, and that even community chartered CUs can take so long to approve deals than the new car smell wears off.
The key in all this is understanding the business better, according to representatives of four dealers who recently sat down with credit unions during the Credit Union Direct Lending Conference here. The dealers shared their views on credit unions, how some CUs can "sabotage" deals, what makes for good relationships and other issues in response to questions from their audience.
Participating in the Q&A were: Paul McCarthy, general manager of Stevenson Auto Group in North Carolina; Paul Green, sales manager for Jerry's Auto Group in Maryland; Doug Michelson, general manager of Classic Toyota Scion in Illinois; and Kyle Dudgeon, general manager of Evans Toyota Indiana. Jim Treece, industry editor with Automotive News, moderated.
Below is a look at the views that were exchanged.
Q: Credit unions are sort of the heroes of recession. When times got bad, CUs stuck with dealers and kept lending. Some might think it's payback time. Do you feel you owe CUs some consideration?
Dudgeon: You are correct in saying credit unions stuck with us during hard times. That's when you build the relationships that should carry you through where you are now. And if it hasn't, the relationship wasn't as strong as you thought. A good relationship doesn't change regardless of what competition does. But it does change, even month to month. Consistency is the key. I wouldn't say dealers necessarily owe anyone anything, but you should be getting your piece of the pie as a result of the relationships.
Michelson: I think 'bank' is almost a dirty word right now. People think of credit unions as a safe place. Some people will pay a higher rate just to go to their credit union, and that trust is binding. The dealership would like to put every contract we could with credit unions just for that reason. And we like that members come to our dealership because of that relationship, whereas the captives aren't sending us customers. I think it should be a much better couple of years for credit unions.
Green: To me credit union means "loyalty." Even when we tell them we can do a better rate with a program we have through Ally/GMAC, some people won't even fill that out.
McCarthy: Certainly, credit unions were there when the banks tightened up. That was important to us. I think we need to be reminded about the relationships. As an (automotive) group we have 20 finance managers; every time they do a deal, in the back of their minds they know where they are going to place that loan, or try to place it. You need to be in that mindset. Where they place it dictates their income.
Q: With community charters, do you find there is a different attitude with your customers according to age range when you suggest a credit union? Do you ever have to explain the difference?
Michelson: We have customers who think they can't get into a credit union, so they have to be educated. People 40- 60 are very aware of credit unions, younger people need to be educated.
Green: I find they are excited when I say we can get them into a credit union. They like the idea of joining and the other package of services that are available. It's an easy process, because we do everything at the dealership. In the beginning we had to send them to the credit union. Now we have them fill out the membership card.
Q: It seems you are in the box. Some of our issues are the pressures that come from upstairs. Our floor plan guy will give us a percentage, and that's his paycheck. We are not the lowest rate in town; we're not the most convenient, and membership is seen as a pain in the butt.
Green: I direct a loan to where it's easiest to get paid. We do special credit, all kinds of credit. If it takes me a week to get credit, I'm not going to go that way. You do pay us. I know it's 1% of the loan amount, plus you allow me to sell GAP and Warranty, and I'm still making as much as I would on the captive where I get nothing but a hundred bucks. Bank of America won't finance someone who is a 590. Bank of America won't go to 72 months on an 06 (model).
Michelson: When we know a person is a member of a credit union and their history isn't so great, we try to get them to work with the credit union. We have M&I Bank and Harris Bank and our captive. We don't use any but the captive, and if we can't use the captive we use the credit union.
Q: Most dealers know the reality is that Bank of America is at 1.89%. Doesn't that mean the reality is it's tough in the field?
Green: You're not going to get everybody. But when you see what some people will do for you , you have to return the favor. It's been amazing what the credit union will actually do for their own membership. You'll listen to their stories when no one else will.
Q: In the prime segment, are there other lenders out there doing things for you that you are not getting from credit unions that they should be capable of doing?
McCarthy: The first thing the finance manager is looking for is a lender who will approve the deal that he has. If that deal gets conditioned by $200 or $500 or more, now he's looking at a situation where he has to recontact the customer. In a busy store that's a problem. So a lot of times he may be willing to take a higher rate just to get the approval.
Q: Am I hearing from you that the buy-rate isn't quite as important as we think?
Dudgeon: It definitely has some importance. It's all about the almighty dollar to every person in the room. As a finance manager, you're going to work according to your pay plan. You are going to go with where you can make the most money, but also where you can get that deal bought. Bank of America is great for about this much business (held fingers close together); most banks want all your good stuff but none of the bad. It has to be the good with the bad.
Michelson: If you can make it up in your profits in selling other things, then buy rate isn't as important. A deal with the captive at 0% may mean we make $250. I'd rather do it with a CU and make some money.
Q: What kind of communication do you want? Is it enough to just look into the CUDL system?
Michelson: I'd rather get a phone call when it's not approved.
Green: The personal touch is always nice, but most of the time when you're trying to reach someone they've got seven customers in front of them. The CUDL system seems to work well.
McCarthy: I do think that call from the lender, whether it's the general manager and finance manager, saying 'I approved X number of deals this week, how many am I getting?' is important.
Q: You have relationships with CUs and other lenders. If a credit union is just entering indirect, what is the best way to get into your store and form a relationship?
Green: It would be the same as when a new customer comes in and asks, 'Why should I buy from you?' Same thing with you: What makes you special? Is it your advances, your terms, a college grad program? Is there some option you have that is not endemic to everyone else.
Q: How do you feel about the CUDL fee to be a participant vs. others?
McCarthy: We pay the fee whether we use the program or not. Does it make us more likely to use it? I don't think so. It's just the cost of doing business. We value credit unions and it opens doors for us.
Michelson: As a dealer you want that option out there. I don't think the fee has anything to do with it.
Q: We have been flat out told by dealers that if we have to pay a fee to use you, we won't use you. What can I say?
Michelson: Show them how it will benefit them. Give them a reason.
Q: I don't see any time in near future where all lenders will go to a flat fee. It will be very hard to regulate such a rule, due to the risk-based loans. But flat fees for some CUs might help.
Green: I've heard about this for 28 years. If it does come to fruition I think it would really help you. If you are paying us a flat fee right now, and the bank has to pay a flat fee, what's that going to mean to you?
McCarthy: I think someday we will have standard rates for standard tiers.
Q: What is most important to you in building relationships? Are face-to-face contacts important? Is it flexibility or consistency?
Dudgeon: You definitely have to have those things, plus multiple contacts via phone. If you're available, we'll call. If you're not, and it happens frequently, you get less and less business.
Michelson: If our buyer from TFS isn't there, we won't send a deal in. We know his parameters, and sometimes we will hold a deal if he's out. If we know your credit union and your parameters, we know what to send you and what not to send, and we will send you more business.
McCarthy: Consistency; making us accountable if you stepped up and helped us on a deal and then asking about other deals. And flexibility. Anything that allows us to take that deal and be done with it. When you make the effort to build a relationship you are entitled to hold us accountable.
Q: What do you think about Smart Approvals where the member is preapproved? If that person comes into the dealership, is it high five, 'Great, we've got an approval,' or 'Ughh, we've got a dollar cap?'
Michelson: I've heard about these preapproval programs where the member comes in and we are able to go by your guidelines, and then send them to the credit union. When the customer wants to leave our dealership, we don't want them to leave our dealership. We will do anything to not have the customer say, "I'm going to my bank or my credit union." We want to lock them up. A preapproval program from a credit union is something that would likely increase good business.
Green: If we get a preapproval, and the member says "I am buying a $12,000 car," we say "Why $12,000?" We say, "Did you apply for $12,000 or were you're approved for $12,000?" If someone qualifies for 15, give them 15.
Dudgeon: Some CU will almost sabotage the deal by telling a member "You are paying too much an this is not a good deal." That can mess up the relationship with the dealer.
McCarthy: I think preapproval programs are a good idea. For us, nothing happens until we sell a car. If you put one person in the market who wasn't thinking about buying a car because they got a preapproval, that's good.
