When Banks Bow Out, Credit Unions Can Ride High on Auto Loans
The economic downturn of the past two years has been tough on banks, but it has presented the best opportunity in decades for credit unions to grow by expanding their base of auto loans. When banks and finance companies severely curtailed their new and used car loans, vehicle shoppers rediscovered their neighborhood credit unions. Those credit unions that were prepared to shape their loan products to the local consumer's needs and circumstances have been able to position themselves for tremendous growth.
At Michigan First Credit Union, for example, we set records for new members every month during the downturn, and over the past two years, our auto-loan business has grown 20 to 30 percent. The reason is that we worked in a flexible partnership with auto dealers to meet the requirements of the often economically beleaguered residents of metro Detroit.
An example of how credit unions can reshape their services to capitalize on a period of economic stress is Michigan First's "Loan Zone" program. Loan Zone events are an evolution of work that the credit union has been doing for more than 10 years in working with dealers to stage on-site shopping events for our members. Multiple dealers bring vehicles to a single location where our members can shop easily for new or used cars. We had team members there to carry out the financing work for the purchases, making these occasions one-stop shopping opportunities.
Over the past couple of years, we have escalated these events to a two-day Loan Zone car sale. We gather more than 200 new and used vehicles in the Michigan First headquarters parking area on a Friday and Saturday. Half to two-thirds of the vehicles are priced under $10,000, so members with restricted budgets during the downturn can obtain an auto loan that is affordable.
The Loan Zone events offer customers many incentives and perks for financing with Michigan First. At our November 2009 Loan Zone, customers who were strapped by other expenses during the holiday season were offered the option to delay their first loan payment until February. Preapproved loan applicants receive a $50 Visa gift card. The first oil change is free, and dealers offer a two-month, 3,000-mile warranty on the used cars at the event.
The Loan Zone, which we run three times a year, has been a spectacular success for Michigan First, our members and our preferred dealer partners. Despite a difficult economy, the Loan Zone became a win-win program because we fine-tuned it to pay attention to the types of cars and level of purchases our members were seeking. By bringing in so many low-priced vehicles, we were able to tailor the event to the customer's ability to buy.
Our Loan Zone events in May and August of 2009 each generated more than $1 million in auto loans, with more than 80 vehicles purchased at each sale. The November 2009 event registered $650,000 in loans. Three events produced $2.6 million in sales.
Clearly, consumers love the Loan Zone. Certainly Michigan First loves the results. And our dealer partners are ecstatic. Where else can they sell more than 80 cars in two days? Additionally, they gain brand exposure for their after-sale services and products. Over 10 years, every dealer has walked away feeling good about their sales results at our events.
Of even greater importance, however, the Loan Zone program has helped reshape attitudes of car buyers regarding where to go for a loan. Last year, dealership financing sources in America were in upheaval. Many shoppers, therefore, turned for the first time to a credit union. We opened the eyes of hundreds of southeast Michigan residents when they discovered we had no shortage of money to lend at great rates. Credit unions did not get caught up in the financial schemes that had caused many banks to pull back on lending, while increasing fees and reducing service. The community discovered that we are a good place to do business. Since we launched the Loan Zone, attendance has grown exponentially, with shoppers flooding our car sales.
The Loan Zone car sales have enabled us to learn what we view as lesson No. 1 for doing business during an economic downturn: Don't believe that tough economic times mean that you can't lend. I constantly hear lenders saying times are too tough and people aren't borrowing, but they are. You may just need to work harder or be more creative to attract them.
Don't be afraid to adopt new ideas or become aggressive in your offerings. The marketplace contains more than sufficient demand for auto loans, so don't shut yourself out of the game before it starts. You may need to automate systems, retrain staff or take other steps.
Michael Poulos is president/CEO of Michigan First Credit Union. He can be reached at 248-443-4601 or