The Hard Truths Of Credit Union Philosophy Vs. Car Dealer Philosophy

One of the potential pitfalls to indirect lending is a question of credit union philosophy. Following Point Mugu FCU CEO Ron McDaniel's presentation to the NACCU meeting here on indirect lending, some of the Q&A was dominated by how a credit union can stay true to its philosophy while getting involved with auto dealers who have a philosophy of their own.

* Member service versus customer service. "We had a dealer who was great to us, but the service to our members wasn't," said one conference attendee. "We decided to stop doing business with that dealership because the member connects the credit union and the dealer." McDaniel said that while he could see why the credit union determined it was better not to do business with that dealership, he suggested that in most cases, members really don't connect the dealer with the credit union, "at least, they don't in our market," he added.

* If you can't beat 'em, join 'em redux. One member of the audience asked if trying to get the dealership to become a SEG of the credit union or to get individuals of the dealership to join the credit union was a good way to get more "buy-in" from the dealership-both in terms of the dealer wanting to send good loans to the credit union as well as to buy into the credit union philosophy.

"It's a nice thought, but it doesn't work," said McDaniel. "Part of the problem is that these people move around a lot from dealership to dealership, you could probably establish a whole new category of delinquency based just on your dealership members. And even just going to the F&I guy doesn't work because the fact is, they have a family to feed."

* Risk-based lending. If a credit union has philosophic qualms about doing risk-based lending, then indirect lending at that same credit union simply won't work, McDaniel suggested, noting, "Risk-based pricing is key to any indirect lending program."