CHARLESTON, N.C. – Some divorces can be messy, but The Aimbridge Group says there are no hard feelings between the company and the Credit Union Indirect Lending Association following CUILA-participating credit unions' decision last month to end their eight-year indirect lending relationship with The Aimbridge Group (CU Times, May 14.) "The credit unions wanted a more direct involvement with the dealers and it was time for them to have one," said Stephen Bentley, CEO of The Aimbridge Group, formerly known as Bentley Networks, "The Denver market was our original market, but it's a very mature market now and it was time for them to move on." Bentley said The Aimbridge Group continues to have a relationship with CUILA, "it's just the indirect lending piece we don't have with them anymore because of the sale." In fact, the indirect lending division is only one of five divisions of the company. The remaining four include: direct auto sales; auto leasing; financial services; and mortgages. The Aimbridge Group also continues to have indirect lending relationships with around 100 credit unions in eight major metro areas including Colorado Springs, St. Louis, Miami, Jacksonville, Orlando, Tampa, Dallas, and Detroit. According to Bentley, the company expects to originate more than $1 billion in loans this year through its indirect lending operations in the markets it does business in. In 2002, the company did $1.75 billion in indirect business, and that was without the Dallas and Detroit markets which The Aimbridge Group added in early 2003. The figure also included the Denver market which is no longer an Aimbridge market because of the CUILA sale. "The CUILA sale allowed us to take the capital we got from the transaction to support our national expansion of our product lines," said Stephen Bentley, CEO, the Aimbridge Group. The company has already expanded its national sales team, and in the next two weeks it expects to announce contracts with credit unions in three other major markets. By the end of the year, it plans to add two more indirect lending markets and 10 more markets in 2004. In determining which market to pursue credit union relations with, Bentley said he takes into account various factors. Every market is different, he said. Among the factors he considers are the size of the market, the level of sophistication of the dealer network, credit unions' involvement in indirect lending, credit unions' field-of-membership, and their asset and liability status. One example of a market Bentley wouldn't consider is San Antonio, Texas. He said there are already many credit unions in the area that are involved with indirect lending and have well-established programs. "Our objective is to identify markets where credit unions are doing indirect lending and where we do it cheaper by aggregating participation and leveraging economies of scale," he said. As a distribution channel, indirect lending is fairly new to credit unions, Bentley pointed out. In fact, CUs have only really been involved with indirect lending for about the last 10 years, he said, adding that about 50% of CUs are currently involved with the service. "To go into indirect lending, you need the expertise dealing with the dealer network and the technology to connect with dealers efficiently, That takes a significant capital investment," said Bentley. He added that, "You also have to have a market presence if you want to do business with a dealer that's accustomed to doing 300 sales a month. If you're an individual credit union and only able to do five sales a month, that's not significant to a dealer. Our goal is to be a significant source of funding for the dealerships." Bentley defined "significant" as "accounting for 25% or more of their transactions." To do that, he said, you need to have people out in the market building relations with dealers and learning what they want. The Aimbridge Group has developed an infrastructure and software to develop and monitor those types of relationships, Bentley said. For an indirect lending program to be successful, Bentley opined it needs to be flexible and competitive in the market. That means, he said, being able to deal with things like manufacturers' zero percent financing and rebate offers, and new players that come in to the market. "We constantly analyze a market from the credit union and the dealer side," said Bentley, "and look at their position in the market versus their underwriting and pricing strategies." Bentley said he frequently sees credit unions that position themselves incorrectly in their market. "If a credit union's loan-to-share ratio is high and it feels it needs to slow down loans, it will likely raise its rates," he said. "By doing this they're essentially telling dealers they're not competitive. Credit unions involved with indirect lending need to establish long term playing processes and establish policies so the credit union hits those processes." Understandably this is probably more difficult for small credit unions to do than larger ones, Bentley said, "because they're dealing with a small balance sheet. But large or small, all credit unions have to compete in the market." Bentley is aware of the historical love-hate relationship that's existed between credit unions and dealers. He said the root of the problem is when a credit union, that has a fiduciary responsibility to its members and wants to protect them, tries to renegotiate with a dealer when a member goes to buy a vehicle. Bentley concedes this is "a historical problem. The credit union wants to create the highest level of service for its members, and it may feel it can't do that through the indirect lending channel. The trade-off is that on a direct lending basis, a credit union may only wind up doing about 25% of their members' auto lending." In fact, said Bentley, credit unions need to support both the direct and indirect auto lending channels. The direct channel is more preferred by credit unions, because it gives CUs more control over the transaction and service. But the downside of direct lending, he said, is it can't deliver the volume of auto lending credit unions want." Despite The Aimbridge Group's best intentions, sometimes a credit union can't approve a members' loan because of poor credit, but Bentley said he doesn't let that unnerve him. When that happens, Bentley tries to figure out what the company could have done to have helped the member get their loan from the credit union. "We look at it as a continuous process of helping credit unions increase their auto lending portfolio," he said. [email protected]