BOX ELDER, S.D. -- Shirley Stover's initial idea was for Sentinel FCU to just buy its own car dealership so it could offer more car choices and better deals to the soldiers at Ellsworth Air Force Base here. But Sentinel FCU, a $48 million-in-assets CU, couldn't afford that, CEO Nancy Ellwein told Stover, so she started thinking again and came up with the idea of renting a car dealership. Or at least space in one.

Stover, Sentinel FCU's (www.sentinelfcu.org) senior vice president of lending, wanted something that would counteract the downsides of indirect lending. Sentinel FCU paid dealers $80,000 in indirect fees in 2006, she said, and lost a lot of add-on business. And after spending 10 years of her career in a car dealer's finance and insurance office she knew every trick of the trade, she told Credit Union Times.

"We allowed the dealers to sign up new members and that was great, but the credit union didn't have a strong enough program in place to mine those new accounts for additional services. Once the loan was paid off, the new member left the credit union. If the personal finance officers preapproved a loan and the member went to the dealer, the dealerships F&I department would talk them into doing the loan with them, and we were still paying the dealer the fee," she said. "Then the dealership's F&I department also got the opportunity to sell the back-end products, like Gap and mechanical breakdown coverage and even credit life and credit disability coverage. We weren't getting the chance to sell those products even though what we had to sell was better for the soldiers. We needed the members in our chairs."

So Stover found a way around it and had the full support of Matt Gluhosky, head of the loan department. "I went to Kopren Motors, a dealership right outside the main gate and did a deal with them. Now, they're happy and we're happy too." After first opening on Feb. 11 with a grand opening in the first week of March, the new-style partnership of Kopren Motors/Sentinel FCU sold five cars in a matter of weeks, and Stover reports that they'd just delivered the sixteenth used car deal. "We financed 14 of the 16 and sold Gap on 13 of the financed deals. So we are rocking and rolling." The grand opening advertised 3.99% financing for the first 20 cars sold no matter the credit bureau score. In the first month, 16 units were sold for $131,000, and nine new credit union members gained. All this despite an opening-week blizzard.

"We killed a few birds with one stone," she said. "We feel that we do owe the military something as we're right here on base, and these soldiers need vehicles, and many don't make a lot of money. Some even have credit that's not so good. We wanted a way to give them what they needed even if it's not what they dream of. Someone has to teach them that they should crawl, then walk and then run, financially speaking, I mean."

First Sergeants Led The Way

Stover said she met for breakfast monthly with the "first shirts," slang for the first sergeants on base and always asks what Sentinel can do better, how the CU can help. "Well, once they said, payday loans, our guys are getting into trouble with payday lenders. So we came up with a payday loan product. So I told the firsts about this idea and they loved it! Now, they can't tell the troops where to go for a car or even a car loan, but if the soldiers ask, they tell them to go to the credit union," Stover said.

Stover explained that Kopren Motors supplies the salespeople and the cars and the CU supplies an employee for the F&I office (a retired military veteran named Kelly Kasulas). They share advertising, office expenses and utilities. The dealer must always have at least 10 cars available in a price range of $7,000-$10,000 that are decent cars that look good. "These soldiers don't want Granny cars, they like eye candy cars," Stover said. But neither does she want soldiers lusting after $25,000 Camaros and Firebirds to get in over their heads with loans they can't afford.

"First they establish their credit, get a nice, solid car, pay the loan, maybe get a raise the next year. Then they can turn it in and get a newer car--but it can't be start at the top and work your way down, it has to be start at the bottom and work your way up!" The dealer has also agreed to locate any vehicle that a potential customer might want. Stover believes firmly that part of the credit union's responsibility is to educate members about making prudent financial decisions. She takes that responsibility to heart, particularly because so many members are soldiers serving their country. And everyone at Sentinel FCU associated with this effort feels that way too, she said.

Pursuing that philosophy also affords the ability to open up accounts, do all the financing and sell the back end products. "We can cross sell and up sell our checking accounts and Visa cards. In fact, any product we have will be cross sold." As part of the agreement, Sentinel no longer pays a fee to the dealership but does pay the dealership a small commission on the sale of the add-on products and its employee an hourly wage.

Stover's experience in car lending also paid dividends in seeing whatever mines might lie hidden in the field. "We centralized our underwriting so that all indirect lending and our dealership loan applications will go through the underwriter for approval or denial," she said. "That way the personal financial officer at our new dealership will not be approving their own loans. The centralized underwriting will make our auditors and EEOC happy."

"I did my due diligence and approached a used-car dealership," said Stover. "I knew that a new-car dealership probably wouldn't work because of the franchise part. We also have an ATM alongside the building that takes deposits, and together with our employee being able to open up accounts and make loans, it's like another branch location." The whole concept took a year from idea to finished reality. Finding a lot, signing contracts, working out all the details.

This idea won't save Sentinel the entire $80,000 because they still do indirect lending with other dealers, but Stover said that if it sells enough cars, they won't be so dependant upon the other dealerships. And they will be in a position to tell the other dealerships that they can still send deals to the CU but that they won't be paid for them anymore. The best part is that SFCU will be selling products and forming the relationships that make for a lifetime bond with a credit union. Stover said she sees no reason why this idea can't be duplicated by other credit unions.

--cburger@cutimes.com

Instant Insights /

Renting a Car Dealership Plan Pays Off For Sentinel FCU and Soldier-Members

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