HAUPPAUGE, N.Y.-The only thing predictable about the auto lending market this year is that competition will be as big or bigger than in recent years.
That's the stance of several sources who see a lot of volatility in the auto loan and auto sales markets in 2012, and as a result suggest a wide range of solutions to win member financing.
What is certain is that bank and credit union rates will continue to remain low, and manufacturer incentives will certainly raise the competitive bar, experts predict. However, when subvented financing will enter the high speed lane is uncertain (see related story), as is how gas prices and the fragile economy will ultimately affect car buyers, who are coming back to the dealerships.
"The auto industry is starting off a year in which no one knows what to expect," said GrooveCar President David Jacobson. "At the end of last year, projections for auto sales for 2012 went from 10 million units to 14 million. So sales are expected to rise. But Kelley Bluebook is expecting pricing to be volatile, and you have gas prices expected to rise."
Jacobson pegged low new car financing rates at 1.69% APR. "If credit unions want to compete that's what it will take in some markets. It's crazy."
At the San Antonio-based SWBC, Cory Jefferies, VP of business development, said the competition is as tough as he's seen in 25 years. "Floor rates are at 1.9% and I've heard of some California financials offering 1.47%."
One CU Finds Niche
Sources recommended that CUs do everything possible to stay in front of dealers and members with heightened service and special offers. In Madison, Wis., Mike Long, EVP-chief credit officer at UW CU, said his credit union has all but given up on new car lending but has found a great deal of success with preapproval campaigns and auto loan recapture.
"We are avoiding the race to the bottom on rate," said Long, a member of the CUNA Lending Council. "Our best rate is 3.69% for A-plus and A credit up to 60 months. It's simply not worth putting out a 1.9% rate. After paying dealers and the cost for origination, the loan is not really making that much money."
The 3.69% rate isn't hurting the $1.5-billion UW CU's direct auto loan business, which was up more than 70% last year and the trend has continued in 2012. Total originations for the first two months are up 24% over projections.
"A lot of the business is coming from recapture," stated Long. "We work with credit bureaus each month to get names of members who financed elsewhere at a higher rate. We hired additional staff to make outbound calls, and members are excited to hear from us. Who doesn't want to save money now?"
Paying Attention To C-Tier
To remain competitive on rate and other financing options, credit unions have to stay on top of what other players in their market are charging. But only paying attention to the highest tier can cost the credit union a lot of money, said Keith Reynolds, community president of CEFCU San Jose (Calif.). The $4.6-billion, Peoria, Ill.-based CEFCU makes sure its rates are competitive at all risk levels.
"You can really lose a lot of market share in that C tier. In our case our C tier historically has been more profitable than our A tier. I doubt that very many credit unions have more than 50% of their members getting their best rate."
Reynolds said CEFCU puts feet on the street to learn what other financial institutions are offering below prime. "Talk to the dealers and they will tell you what is going on in your markets."
Credit unions have to become a full-service lender, stressed GrooveCar's Jacobson, who defined "full service" as offering loans across the full spectrum of credit quality. "Going after just the A tier won't make much money."
Keeping It Simple
While this year, sources say, it will take a lot of additional effort from CUs-on many levels-to increase the auto loan portfolio, the $6.6-billion Security Service FCU, one of the largest CU auto lenders in the country, prefers an uncomplicated approach.
Mike Chapman, EVP and chief consumer lending officer, said when times get tough SSFCU focuses even more on "auto financing 101. We are successful because of what we have always done. We have built very strong relationships with dealers, providing them with the best service and fastest turnaround times. Because when apples are apples you do business with the people who provide you with the best service and are reliable."
A number of sources indicated that especially today, if the credit union does not have a strong dealer presence, it is losing a lot of business. "This is where the deals are being generated," said Chapman.
Credit Union Direct Lending agrees.
"We see point-of-sale purchases are up, particularly on new cars. You have to be engaged with the dealers, work those relationships, and make the member experience at the dealership as efficient as possible," advised Joe Greenwald VP of marketing for CUDL, Ontario, Calif., who noted CU share of the auto loan market has leveled off at about 17%. "Today you can all but complete the car-buying transaction online if you put all the right things together. The credit union can have an auto shopping site, give preapproval, drop that preapproval into the dealer's system, so now all members have to do is go to the dealer, say they found the car they want, and then finish the transaction."
GrooveCar's Jacobson concurred, saying that now banks are instituting online car-buying services. "They want more control over the sale. The credit union has to be doing things to attract members before they head to the dealership. There are coupon products, such as cuautocoupon, that make members aware of the credit union and connects them with the CU's offer before heading to the dealer. If the CU is just concentrating on battling bank and other lenders with rate at the point of sale, it will win some, lose some, and not really gain much ground."
For info: www.groovecar.com, www.cudl.com, www.swbc.com
$ Point of Purchase Loans Outstanding for All U.S. Credit UnionsData as of September 30, 2011 U.S. New & Used Auto Sales1911 - 2011 Automotive 60 Day Delinquency Balances(in Millions) Credit Union Auto Lending Market Share Nationwide
