LAS VEGAS — The key to successful credit union auto lending programs is to "be there when the members are."
Being ready to lend — especially late in the evenings and on weekends — is critical, says Keith Troup, VP of lending and chief lending officer for $2 billion WSECU in Olympia, Wash.
There is "no point" in reviewing a bunch of loan applications on Monday morning, because those loans are already gone, he advised. "Be available over weekends — especially long weekends."
Troup spoke during a panel discussion on "Key Strategies in Automotive Lending" during the recent CU Direct Lending & Marketing Conference here.
The panel was such a draw that staff of the Aria hotel had to scramble to bring in extra chairs to seat the overflow crowd.
WSECU serves all of Washington state through 18 branches. It started its indirect lending program, autos only, in 2001. In 2010 the CU added recreational vehicles, and has plans to pilot "lifestyle loans" this year.
Today, WSECU's indirect lending network has 500 dealers, with two indirect reps assigned to dealer relationships.
"We have seen ebbs and flows," Troup said. "During the financial crisis lending was flat for three or four years. In 2013 went to 9,307 indirect loans from 5,966 in 2012. We project doing 15,000 loans in 2014 and nearly 18,000 in 2015. We have grown loans in a responsible way. We don't just take loans to build up balances."
A key metric to watch is financed member purchases and CU member loans, according to Troup, noting WSECU closely follows its market share. The credit union now finances 40% of its members' auto purchases.
When writing loans, asset quality is No. 1, Troup insisted. He said WSECU does not sacrifice credit quality to make a loan, as it wants the charge-off and delinquency ratios combined to be about 2%. "Below that, you are missing opportunities. Above that, you need to tighten credit," he said.
Among WSECU's lending best practices: create a paperless process, develop and maintain good relationships with dealers, know service is job No. 1, get the entire CU on board, expertise is a must, technology is your friend, and avoid channel conflict.
The credit unions' branches "need to be supportive" of the indirect program, Troup explained. If someone gets pre-approved in a WSECU branch, both channels get credit for the completed loan.
"All rates and terms are the same in every channel," he said. "Give members multiple options on how they want to finalize the transaction — branch or indirect. At all costs, avoid channel conflict."
Troup's final three key thoughts: know your dealers, data is king, and it's not all about rates/flats.
Preferred Dealership Network
Debbie Kirkpatrick, director of consumer lending for $1.1 billion Credit Union of Colorado, Denver, said its loan portfolio includes 54.89% mortgages, 15.8% indirect vehicles, and 15.86% direct vehicles. It has 11,104 direct vehicle loans, 8,060 indirect; both about $112 million in balances.
The key question, she said, is: How do we take care of current members and generate new business without paying dealership flats?
In 2013 CU of Colorado generated $61 in indirect loans, but had to pay $769,233 in incentives to dealerships — "good news, bad news," she quipped. To cut costs, it developed a "preferred dealership network." To qualify, it must be a Colorado dealership in good standing, must be on the CUDL platform, and must agree to the CU's "code of conduct."
"The dealerships had to agree not to flip a preapproved member to a competitive lender," she explained. "There is no flat paid to the dealer. The dealership assigns an individual point of contact and that person is promoted by the credit union to our members."
Being on the CUDL platform allows members to go online to obtain instant pre-approval and print out a certificate, she noted.
"Best practice No. 1 of indirect lending is always take care of the member," said Kirkpatrick. "Have easy-to-use technology, be consistent and have seasoned underwriters who understand indirect lending."
Frank Shoffner, SVP and chief operations officer for $559 million Credit Union of America, Wichita, Kan., said his institution was chartered in 1935 as a teachers' credit union. Today it is the No. 2 volume auto lender in its market, per auto count.
CU of America started indirect program in 2005 by partnering with CUDL, according to Shoffner. It currently holds $33 million in new car loans, $74 million used.
"Our philosophy is keep it simple," he said. "All dealers are paid a flat 1%, with exception of one dealer. In indirect lending, the dealer, the credit union and the member all must win. If one loses, the program falls apart."
According to Shoffner, the finance and insurance manager, or "Mr. F&I" is the gatekeeper to the program. The loan manager, underwriters and marketing folks all are expected to visit the dealers regularly. Sometimes just stop by on way home from work to say "thanks for the business."
"Branches have to be advocates for the program," he said. "The sales staff are paid to sell additional products, and incented to refinance other vehicles."
CU of America runs a large number of sales and promotions, including on-site underwriting during the sale, and special rates and terms.
When someone's application hits the CUDL platform, it is made a priority. "Underwriting is done immediately, with same-day funding if possible," Shoffner said. "Flexibility is important, so credit unions need be ready to match rates or terms offered by their competitors, if necessary."
Stand Out With Color
Patrick Rushenberg is SVP and chief lending officer for TopLine FCU, a $340 million credit union based in Minneapolis. He said TopLine was "heavy into indirect" for about five years, then realized it made mistakes and backed off.
After making corrections, the CU relaunched indirect lending about 2.5 years ago. As the economy has improved, 2013 posted 14% loan growth over 2012.
The "big problem" Rushenberg sees with indirect lending is dealers "do not know how to talk credit union, while credit unions do not know how to talk dealer."
"Dealers just want a program that makes them money and saves them time," he said. "Dealers have a sales culture, while credit unions have a member service culture."
If a CU is in an indirect program, it needs to be "in with both feet," Rushenberg said. He noted most dealers have a binder full of rate sheets, meaning CUs need to know what makes theirs stand out.
"For us to stand out we colorized our rate sheet," he said, noting CUs must keep in mind color sheets do not fax well and must be replaced when rates change. "The CUDL area account representative is a great resource. I encourage you to use the rep. Our rep has a standing Monday meeting with us."
According to Rushenberg, CUs must have a niche to succeed in indirect lending. If all they have is rate, he said, they will "get crushed" by the big banks.
"Know who is the competition and what their program is like," he said, noting that TopLine puts together rate comparisons monthly.
The auto decision engine is very important, Rushenberg continued. He said CUDL's Auto Decision increased TopLine's capture rate by 15%.
"Dealers love after hours approvals. About 30% of what you approve, you should be able to auto approve, but follow up the next day."
On that same note of speed and availability, Rushenberg said fast funding will make or break a CU's indirect lending program.
"Funders have to be dedicated. Know what the department capacity is and plan for busy months," he advised.
