SAN ANTONIO, Texas - Unamiable, adversarial, mistrustful. Credit unions' relationship with auto dealers has been all of the above adjectives. Even with so much bad blood between them, a growing number of credit unions and auto dealerships have managed to bury the hatchet and cooperate in indirect auto lending relationships. Getting credit unions and car dealers to work together in indirect auto lending relationships isn't just difficult, "it's like turning the Queen Mary around," says Jim Phelan of Southwest Business Corp. (SWBC). "There's been a lot of competition in the past between credit unions and car dealers for members' auto loan. A successful indirect auto loan program requires a total turnaround in their attitude toward each other." In fact, the CU/auto dealer adversarial relationship is probably one of the most significant barriers to entry for more credit unions getting involved with indirect auto lending. Despite the odds, a growing number of credit unions are offering their members indirect auto lending. According to CUNA's Economics and Statistics Department in Madison, Wis., 11% of credit unions were offering the program in 1999. That's up from 6% in 1995. Sallie Sylvester, director of training and lending services for the Oregon Credit Union League told Credit Union Times that several credit unions voiced their concerns about whether auto dealers could be trusted when the league announced its partnership last year with CU Direct Lending in Rancho Cucamonga, Calif. Specifically Sylvester said the credit unions were concerned that dealers would try to sway the member away from taking the loan with their credit union and convince them to seek alternative financing through the dealership. To ameliorate credit unions' apprehensions, Sylvester explained to them that CU Direct Lending representatives visit the dealerships regulatory to build relationships and she encouraged the credit unions to do the same. She also advised them to notify CU Direct Lending if a member ever notifies them that a participating dealer tried to steer them away from getting a credit union auto loan. In those instances, CU Direct Lending's policy is to send a regional manager to the dealer site and work with the salespeople there. Since the Oregon CU League began offering the program to its members almost a year ago, Sylvester said about eight credit unions representing 200,000 members have signed up for CU Direct's indirect lending program, "so that speaks for itself," she remarked. Trust between credit unions and auto dealers isn't the only obstacle blocking more credit unions from providing the product. Whether a credit union decides to go it independently and work directly with auto dealers or network with other credit unions and outsource the management of the product, there are still costs and a great deal of time involved in generating a legal agreement and hiring and training staff to work with the dealers and members. "All auto dealers have a lot of financing options they can offer a consumer, they're bottom line driven," said Phelan. "Credit unions have to realize that what's most important to the dealer is closing the deal while the member is there. That means time is of the essence in a credit union successfully holding the member's auto loan." Phelan advises credit unions to offer members pre-approved auto loans and work with auto dealers in their area on dealer participation and flat fee structure loans. He also suggests credit unions involved with indirect auto lending - either independently or with other credit unions - to heavily promote the product to their members. The more members there are shopping for a vehicle who know about the product, the more they'll request credit union financing when they make their purchase decision. SWBC has worked with credit unions setting up indirect auto lending programs both for those that prefer to offer them independently, as well as with other credit unions through a credit union league or CUSO. His strongest advice for credit unions either currently offering the product or considering it - "Be consistent, maintain your underwriting standards," Phelan says. "An auto dealer has to get a feel for the credit union's auto loan policy, how they're done. There's a saying in the industry, `What you did yesterday, you better do today. What you do today, you better do tomorrow.' A credit union involved with indirect auto lending shouldn't do any unusual loan behavior. If it does, they'll lose credibility with the auto dealer." -
ekingoff@cutimes.com
