RANCHO CUCAMONGA, Calif. -- Tony Boutelle is prepping for Credit Union Direct Lending's 9th Annual Auto Lending Symposium on June 20-22, 2007 at the Venetian Resort & Casino in Las Vegas. It will be CUDL's biggest show ever he said, and once again, an opportunity to relay the importance of the CU-owned option for indirect auto loans. It's the power of aggregation, the essence of the cooperative structure of CUs and it just happens to be CUDL's mission statement: Improve Credit Union Lending Through the Power of Aggregation (http://www.cudl.com).
"There will always be cars," allowed Boutelle, musing on how credit unions go through cycles of intense concentration to selling mortgages, small business loans, investments and other lines and products, but cars have always been the recognized bread and butter of the CU loan portfolio. Some 35% of CU loans are auto loans, he said. "Auto loans are consistent. Every 26-months people look for another car." Although auto loans have been replaced by mortgage loans as the largest part of the credit union loan portfolio, they represented over one-third of all loans outstanding in the 1st quarter of 2007.
According to the CUDL 2007 Business Intelligence Report findings, getting a bigger share of wallet for auto loans necessitates making more inroads to dealers. (This mirrors the effort in origination of mortgage loans to nonmembers, who usually take the recommendation of a realtor or mortgage broker). But as rates may be more attractive at a credit union and the dealer just wants to sell the car (as the realtor wants to put a buyer in a house) credit unions must be an option to the dealer.
And why don't more members and consumers in general finance their autos through a CU?
That's complicated, but rate sure isn't the problem. Example: a member of Tropical Financial Credit Union in Miami (a CUDL member) bought a 2002 BMW 325i at CARMAX last week and got a five-year loan for the purchase price of $18,335, (after a trade in) for a rate of 8.75%. Two days later she refinanced the loan at TFCU at a rate of 7.2%.
Credit unions offer lower interest rates than other financial institutions to almost every consumer. The only category where another financial institution offered a better rate was in the prime category, where captives offered an average rate of 6.52% on vehicle loans while credit unions on average offered a 7.16% rate.
There were 3.9 million new vehicle sales in the 1st quarter of 2007 and 6.8 million used vehicle sales, about the same volume as new and used vehicle sales over a year ago. Most of that growth came from foreign automaker sales. Toyota and Honda experienced sales increases while domestic automakers experienced declines in the 1st quarter of 2007 compared to the 1st quarter of 2006. Toyota actually overtook General Motors in the first quarter to become the world's largest automaker (See
Not the Usual Suspects
National competitors are attacking credit union market share, but the usual suspects are disappearing as fast as the Ten Little Indians in an Agatha Christie mystery novel.
Ford Motor Credit and GMAC were the nation's top lenders, but now Toyota Financial is No. 1. Still, when aggregated, CUDL credit unions are the nation's sixth largest lender and they have held this spot for the past year.
Boutelle knows the competition. He makes his case on a simple proposition. "If we could get 400 more credit unions (CUDL now has 600 CUs and 8,900 dealers) we could significantly lower their costs tomorrow and improve the member-driven service they provide." He also said that dealers appreciate the affinity that the CUDL relationship offers. But aggregating more CUs onto the CUDL platform is the Holy Grail of lowering costs and improving the speed of transactions
Boutelle wasn't fazed by DealerTrack's contention that e-contracting is the killer app of indirect auto lending approval. He says CUDL's methods are a much better way for CUs to relate to their members. "Owning the delivery channel is a priority," he said. Without choices and the opportunity to control the delivery within the dealership much is lost, he said.
"There are three portals, DealerTrack, which was started and owned by big banks and has now gone public, Route 1, which is captive owned and CUDL. The differences are easy to see for CUs, Boutelle said. "DealerTrack gets money from the transaction, but CUDL only gets a fee when the loan is approved. They have a model to make money. We have a model to help CUs make auto loans. And we also do the automated underwriting decisions and fill out forms for new members. In a word or phrase, we're member-centric." CUDL's AutoSmart program is the member's best friend when learning about shopping for a car and how to avoid spending too much for what they want.
He doubted that the e-contracting touted by DealerTrack had any real impact because so few dealers used it. "Dealers don't care about e-contracting; they care about getting their money fast. And our system is fast and pays the dealer fast."
So why aren't there more CUs in the program then? "Well, indirect lending is still very complicated. To do it right requires more than a tad of effort. That's why we have the CUDL University. CUs have to learn how to work with dealers, and some credit unions just don't see indirect lending as a core competency," he said.
Who knows what they are afraid of, because CUs in the CUDL program have managed credit risk well, and credit scores of borrowers are similar to banks and captive lenders. Delinquencies and charge offs in auto lending also follow other CU lending lines, with ratios at about 1.0%. CUDL recommends that strong underwriting must remain topmost if profitability is to continue, however, and servicing costs contained.
And those new members who become that through a car loan? CUDL found there is little difference between a member who joins a credit union at a dealership via taking a car loan and one who joins by walking into a CU branch. So it's possible to discard the old notions of member loyalty, as fewer and fewer borrowers first obtain loan approval before shopping for a car. The data CUDL saw prompted them to tell its member CUs to ramp up efforts to contact new member/borrowers after the sale. Nothing seems to work better than a welcoming call from the credit union to seize an opportunity to market other financial products a member may need. And the sooner, the better, because getting a lower rate on a car loan creates plenty of good will given the soaring price of gas these days.