Market Rates, Strong Relationships Key To Success
BEAVERTON, Ore.-Competition from banks and captive lenders combined with declining new car sales have more CUs increasing their emphasis on used car financing, including dropping those rates to keep the auto loan portfolio afloat.
CUs report that subvented financing is impossible to compete with, and the bank lowball rates-often in the sub 3% range-make battling in the new car arena prohibitive based on cost of funds.
Many more CUs are now charging new car rates for used. Gayle Rust Gustafson, VP-financial services at Rivermark Community CU here, said her CU is among them, because going after new car loans is like "swimming upstream. Overall, our auto loan volume is down 50% compared with last summer."
The $500-million CU's biggest opportunity today is refinancing, Gustafson believes. For A and B credit tiers and for cars as old as six years, Rivermark is charging 3.49% APR for 60 months and 2.99% for 48 months. Gustafson said, based on cost of funds, Rivermark is being tested to see how low it can go. "I can't see us going below 2.99% for any term. But a year ago I don't think we would have seen ourselves at 2.99%. These are unprecedented times."
Refi Campaign Successful
Rivermark ran a successful refinance campaign recently that stole loans away from local banks, said Gustafson, a member of the CUNA Lending Council. Ads encouraged consumers to "Pay less for the car you love." Rivermark has also unveiled a promotion to cut two basis points off an existing auto loan as long as the rate does not drop below the CU's current rates.
Focusing on used has helped Ent FCU in Colorado Springs, Colo., grow its overall auto loan portfolio by more than 18% from April through July, reported SVP Bill Vogeney. The $3.1-billion CU is another charging new car rates for used vehicles up to four years old, and is targeting refinancing.
"You can't compete with 0% and a lot of the banks and credit unions are at 2.99%," said Vogeney. "At 2.99% there is not a lot of margin. By the time you pay the dealer and factor in the cost of origination, you are not making any money."
Ent's lowest rate is 3.99% for A credit up to 60 months. "Do what the others are not. If everyone is chasing new cars, go after used. Our direct auto loan volume is up 50% over the last five months due to refinancing." Vogeney reminded that refis also lower the CU's credit risk, since you see the borrower's payment history, and the individual already has money in the car.
While the auto loan market has been "tough" for the $4.5-billion CEFCU, Keith Reynolds, community president of CEFCU San Jose, said the auto loan portfolio has been performing thanks to lowering used car rates to meet that offered on new vehicles, and maintaining strong dealer ties. The Peoria, Ill.-based CEFCU with a division in San Jose, Calif., recently completed a used car promotion that charged 2.99% APR for A-plus credit with 10% cash down on terms out to five years. "The campaign ran for a month and we ended up doing one-and-a-half times the used car loan volume we had been doing," Reynolds said.
CEFCU has focused on maintaining strong dealer relationships-a key to what Reynolds termed the CU's "sustainable lending model." CEFCU pays vey close attention to risk-based pricing tiers and does not change risk structure a great deal. Reynolds, also a member of the CUNA Lending Council, said dealers appreciate that. Dealers also like that when the CU visits, it sends a staffer who is a loan policy decision maker.
Strong Dealer Ties
Strong dealer ties are behind 11% year-over-year auto loan growth at $5.7-billion Security Service FCU, San Antonio, the nation's largest indirect CU lender, shared Michael Chapman, SVP-lending. "Through June, we dispersed $1.1 billion so far this year in indirect, and at least half of that, if not more, is new."
Chapman attributes the steady performance to its long-standing relationships with dealers. "They know we provide excellent service, and we have been there for them through thick and thin, when others have pulled back. Dealers have thanked us for staying with them."
SSFCU varies rates based on market. Chapman said for A credit up to 72 months, the CU will go as low as 3.99% APR on new vehicles. Used rates are similar. "Where we are now is a pretty low rate. We are in a range we have seen only a few times in the last several years."