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…whether or not it arrives.
About midway through 2018, the drastic falloff in auto lending predicted by some auto lending industry analysts—dubbed “carmageddon” by some—hasn’t come to pass. Vehicle sales are still robust, reflecting a slower-than-expected rise in the U.S. prime rate. Even so, a “hold the line—everything’s fine,” attitude could be a strategic mistake. CU Management magazine’s June issue special report on lending will offer five ways to make the most of your auto loan portfolio, especially if you’re depending on low-margin indirect lending volume. Here are three more:
1. If you’re committed to indirect lending, promote that—don’t spend too much on in-branch pre-qualification campaigns. “A lot of credit unions don’t market strongly enough that you can walk into a dealership, sign all the papers there and still get the loan through your credit union,” says CUES member Bill Vogeney, chief revenue officer, $5.1 billion Ent, Colorado Springs, Colo., and author of CUES’ monthly “Lending Perspectives” column. “Instead, credit unions are more likely to do promotions to get people to come to a branch, get pre-qualified and then go to the dealer. It’s a double expense [to promote] both sides of the operation. Don’t be afraid to promote your indirect program.”
2. Consider alternate underwriting models and data sources, rather than solely the outdated FICO. An obvious way for credit unions to extend their reach to more payment-conscious car buyers is to offer residual-based financing, says Brian Timson, national VP/lending, Allied Solutions, Carmel, Minn. These tools can significantly lower payments and shorten payment terms—which helps reduce negative equity positions that many consumers find themselves in.
Many credit unions aren’t even taking part in almost a third of the market, because they don’t have a tool to compete in that space.
Timson points out that millennials—age 22 to 36 as of 2018—will probably be among those most amenable to residual-based products. “Millennials in general are turning out to be more payment shoppers than rate shoppers—even though they don’t like long-term commitments,” he says. “So, the challenge for credit unions is to take advantage of newer products that help shorten terms.”
3. A strong lending sales culture comes from strong leaders who are not afraid to try new things and take risks. “The best lenders are good at sales and good at taking on risk,” says Brett Christensen, owner, CU Lending Advice, Euless, Texas, and lead faculty for CUES School of Consumer Lending™ and CUES Advanced School of Consumer Lending™. “And it’s leadership that makes that happen. It’s a lot easier to be conservative and not buy loans in all tiers. It’s a lot easier to not deal with a sales culture and say you’ll just get by with what you’ve been doing forever on the service side.
“The credit unions that are really good auto lenders usually have a VP of lending or a chief lending officer or a CEO who has a passion for auto lending and communicates that to employees,” he adds.
Pricing and marketing and technology all start to look alike across credit union auto lending operations, says Christensen. Leadership is the key differentiator.
“The best lenders have leaders who are willing to try some new tactics,” he says. “They’re willing to make some changes and get better at sales—maybe tweak a policy here and fight back against the examiners there...that’s leadership.”
Glenn Harrison is a freelance writer based in Stoughton, Wis.
You may also be interested in attending CUES School of Consumer Lending™ and CUES Advanced School of Consumer Lending™ in August in Denver.
