How Credit Unions Can Continue to Thrive in the Brave New Economy
The economic news for the first quarter of 2008 is not encouraging. The subprime mortgage crisis remains prominent, home values continue to trend downward, new housing starts are down, gas prices are soaring, consumer spending is down and consumer confidence is ebbing.
The credit union industry is facing field of membership challenges from the banking industry in Utah and Kansas, and formidable bank lobbying efforts have delayed the CU Regulatory Relief Act. Some credit unions are also struggling with an increase in home foreclosures and auto loan delinquencies, while loan activity is decreasing. That drop in loan activity is far more ominous than short-term foreclosures and delinquencies.
Still, credit union executive teams remain charged with finding a balance between these outside factors and threats, while continuing to serve their membership and foster growth. For our industry, the good news far outweighs the bad. While CUs are not immune, due to both diversification in loan portfolios and a history of responsible lending practices, the impact for most is negligible. Yes, some have gotten caught up in the real estate frenzy; however, the majority of credit unions throughout the country remain fiscally sound and uniquely positioned to prosper in these market conditions.
That is why it is puzzling why so many credit unions are over reacting to today's economic realities. We should be celebrating loss ratios that, although higher than usual, are the envy of banks. CUs should be acknowledging years of growth and stability while continuing to do a brisk business today. Credit unions are the envy of every financial institution in the nation because credit unions are healthy, stable, have plenty of money to lend, and are a trusted destination for financial advice and services. The national and international financial markets may be in turmoil, but our local communities, small businesses and most loyal and responsible members are eager to hear credit unions are open for business.
Where is that message?
No doubt we've been spoiled by the prosperity of the past decade. Many CUs have seen their auto loan portfolios buoyed by the ease and convenience of indirect lending programs that not only allow current members to close loans at the dealership, but also allow dealers to sign up new members. These loans usually have higher loan-to-value ratios than direct credit union loans and the dealer has the opportunity to offer their products, not the credit union's lower priced alternatives. These loans and members have provided many with a false sense of growth when CUs have known for years that members acquired at the dealership have virtually no relationship with us.
In this increasingly competitive auto market, dealers are going to offer financing to their customers through whatever sources that will help them maximize rate spread and profit on their aftermarket and insurance products. Thus, dealers are less likely to send new members and loans to credit unions.
With fewer auto loans to go around, and with the emphasis on captive financing, how do credit unions plan to compete? Credit unions need to reunite their core values and core competencies by providing real value, superior service and competitive product to our most loyal (and current) members. We need to get back into the direct auto lending business with a vengeance.
How do we get back on track? Here's a Top Ten list of favorites:
1. Management must focus on direct lending. The message comes from the top.
2. Find a way to reward your members service representatives on loan volume and sale of products.
3. Focus the marketing message, especially business development initiatives, on our value story. Take GAP insurance. It costs under $100, most credit unions offer it for $150 to $300, and most dealers charge $595.
4. Use relationship pricing.
5. Utilize an unbiased, nondealer new and used car buying program that protects your direct auto loan and cross sells your products.
6. Curb your indirect program to current members only, and please don't offer a lower rate through the dealer than you offer your members directly.
7. Go Green! Offer a discount on any hybrid vehicle or any vehicle that gets better than 30 mpg. It speaks to all members, especially the 25 to 40 year old demographic.
8. Offer car buying seminars to first-time buyers, credit union employees and interested members.
9. Send pre-approval letters to qualified members with a personal message from the CEO thanking them for their loyalty and membership.
10. Schedule semiannual on-site car sales with a special rate for that day only and have your direct car buying program organize it. The members love one-price shopping with no haggling, no pressure and no sales personnel.
The majority of credit unions have ample financial resources to serve their current members and thrive by reaching out and developing new and potentially long-term relationships. We need the hindsight and patience to return to what works and we need the foresight and courage to reach out to those that most need our services right now--our members and our local communities.
Bill Goldberg is president/CEO of AutoAdvisor Services LLC in Orlando, Fla., a credit union car buying program serving the southeastern United States. He also serves as a volunteer on the supervisory committee of Martin FCU and has been affiliated with the credit union industry since 1984. He can be reached at firstname.lastname@example.org and