Credit unions enjoyed being the last ones standing in the auto lending market over the past year, but the competition has started to come back full force.

Banks like Chase and Bank of America have started offering aggressive loan rates that many credit unions can’t compete with, and captive financers are trying to gain back market share.

To continue to hold the footing gained over the last year, credit unions need to get creative, continue to be aggressive and rely on the relationships built over the past year when they were one of the only options available for vehicle loans.

Heritage Federal Credit Union in Newburgh, Ind., said that the dealerships in the area have expressed appreciation for the consistency the credit union has shown over the years.

“We had a dealership that was running a promotion last week, and the owner said he appreciated how we have always been consistent. We have been around in good times and don’t bail in the bad times,” said Dean Pielemeier, chief lending officer.

Last year the credit union had a 39% increase in auto lending over 2008. The credit union has an indirect lending program in place but doesn’t partner with a third-party vendor. Heritage has a list of preferred dealer partners it works with and recommends to members. The auto lending program at Heritage was listed by Callahan & Associates as one of the top 50 credit union programs in 2009.

Pielemeier said that in recent months the credit union has seen new auto lenders enter the area. Both Chase and Huntington Bank, neither of which have branches locally, have been offering extremely low rates to penetrate the market.

“We’re still holding our own. They’ll be here short-term, and they’ll be gone. Dealers don’t want hot and cold. They want consistency,” he added.

CEO Ruth Gaon said that the plan for 2010 is to continue being consistent and offering promotional events that were successful in 2009. The credit union’s main promotional event is its Heritage 500. The promotion starts Memorial Day weekend with the Indy 500 and runs six weeks. Last year, it brought the credit union $25 million in auto loans.

Bob Bulkley, owner of Expressway Dodge, Chrysler and Jeep, one of the dealerships Heritage works with, said that he relied on the credit union to get his business through the recession.

“The past two years have offered a multitude of problems for every automobile dealer in the United States. After surviving the manufacturer’s dealership selection process, we faced an economy that had slowed to a painful pace. Our customers were unsure of what to do, and many of our lenders chose to retain their funds rather than invest in the American public. The key to our survival and the well being of our customers was left to a few more courageous lenders. One of those that reached the furthest was Heritage Federal Credit Union. Heritage’s lending practices were fair and consistent before the economic crunch and remain the same today as we begin our recovery.”

Tony Boutelle, president/CEO of indirect lending network CUDL, said dealers may remember that credit unions were there to lend during the recession, but credit unions still need to be competitive in order to continue to capture loans. Boutelle said special pricing and preferred dealers help, but credit unions can’t and may not want to compete with lenders like Bank of America, which offers loans at 3%.

Boutelle said that he also thinks that the competitive rates being offered right now will calm down and lenders will go back to real pricing. He recommends that credit unions do a complete review and monitoring of their programs to make sure best practices are being implemented. “Given the distractions credit unions faced in 2009 a complete review on loan programs should be completed.”

CUDL released a 2009 white paper to its credit union members titled “Marketing Auto Loans to Members” to highlight some suggested best practices.

In 2009, the Invest in America program brought credit unions a total of $3.5 billion in new auto loans, with 229,000 GM and Chrysler cars and trucks sold. Dave Adams, CUcorp CEO, said that if credit unions can continue to capitalize on opportunities like Invest in America, they can continue to gain market share.

Invest in America recently announced a new incentive program that offers additional discounts to members in specific employee groups. The Private Offer incentive provides members with $750 off a new GM vehicle in addition to other incentives.

“The market is full of opportunities, but it is also intensely competitive. With lenders coming back with 0% financing, this is a huge opportunity for credit unions to be successful,” Adams said.

Overall, while there is expected to be some growth in the auto market this year, NAFCU Economist Tun Wai said that unless the economy turns around significantly, he doesn’t anticipate huge growth.

Predictions for new car sales look negative, he said, across various regions. For used car sales, prediction are slightly better. Wai said there are certain regions that are very strong in used car sales and that he has heard reports of rising prices, which means demand is increasing and inventory is starting to come down.

–lsiegriest@cutimes.com