Turbo Charge Your Loans

Selling the loan isn’t nearly as much fun as selling the car. Who doesn’t appreciate watching that sleek beauty taking the curve just right? But forget the seductive ads for a minute. Consumers are conducting hours of research before the actual car purchase, much of it via their mobile device. The key is to tap into this engagement before, and at the moment, your member decides to buy.

“Thriving CUs are leveraging the complete car buying experience to drive more auto loans,” says Tim Bohlman, SVP/technology solutions for CU Solutions Group and president/COO of LifeStep Solutions™ , Livonia, Mich. “And mobile technology is creating a new shopping paradigm, making the buyer’s experience interactive, easy and fun.” The trendsetters are also looking for new products to capture the car buyer’s attention.

However, Michael Cochrum, VP/analytics and advisory services at CUES Supplier member CU Direct, Ontario, Calif., stresses that “while CUs should embrace autonomous lending solutions that consumers crave, there is no single solution. Rather, a CU must understand and incorporate a variety of strategies.”

1. Mobile Is Dictating the Way We Shop

First, if you don’t have a mobile app to connect with your members, it’s time to get on board. “Millennials demand it, and just about all segments are gravitating toward mobile,” says Bohlman. “And because consumers are so accustomed to using technology, they want faster decisions on everything—including their loan.”

Car buyers are also tapping into numerous mobile resources to make an informed, deliberate decision, rather than going through traditional shopping avenues at the dealer. They want discounts, to pay online or order ahead and, broadly speaking, they want these conveniences from a single sign-on app. No matter the medium, if you’re not offering what your members want, whether it’s ease of application, on-the-spot mobile financing or an intuitive shopping resource, a low rate simply won’t close the loan.

2. More Time Is Spent Researching

“CUs want to capture more loans,” says Robert O’Hara, VP/strategic alliances at GrooveCar, Hauppauge, N.Y. “But we also know that consumers are spending, on average, 14 hours over a four-month period before stepping into a dealer’s showroom. And it’s not rates that they’re researching.” How can you, as a CU, leverage this time spent researching to close more loans?

Today’s car-buying sites are designed to embrace the car shopping experience and engage members before they go into the showroom. Members do the research, secure the financing, and by the time they arrive at the dealer, know exactly what they want.

“This circumvents the dealer’s efforts to sell the buyer something else or woo them with the financing,” says Bohlman. “But it also excludes you, the CU, if you’re not ready to serve your members in the mobile space.”

Within 10 years, maybe less, O’Hara anticipates most cars will be bought via the mobile channel. “Getting the car and the loan at point-of-sale is the objective for the consumer,” reiterates O’Hara. “If you can leverage your CU as part of the car-buying process and engage your members first, dealers (and other lenders) have much less control over who the consumer chooses for financing.”

Bohlman suggests looking at Chase Mobile Banking’s single sign-on approach and how it positions Chase Auto Direct, powered by the online auto marketplace TRUECar, to take customers through the sales funnel. “The steps are straightforward and make it easy for the user.”

While the site doesn’t offer a seamless dealer financing component, Cochrum does appreciate the way it’s positioned. “CUs should follow the Chase example and feature a clear-cut path to their auto buying sites,” he adds.

Cochrum offers three best practices for CUs that want to incorporate a car-buying website into their auto lending process:

• Make the site a fundamental part of your auto loan marketing; understand that users of the site may not be buying today but will view it as a “cool and valuable” tool for the future.
• Make the site part of your branch experience; use in-branch visuals informing members of the site. (Don’t limit marketing to online channels.)
• Make the financing seamless—with no work for the dealer or member.

Cochrum notes that $770 million Truity Credit Union, Bartlesville, Okla., exemplifies how a car-buying site should be executed. “The site is accessible directly from the CU’s home-banking page, and the brand message remains fluid from the member’s perspective—unlike other CUs that provide a link to NADA or TRUECar®, where the branding isn’t consistent.” The site also offers the critical dealer financing component, so when the member is ready to buy, a preapproved application is sitting in the dealer’s queue, ready to complete the transaction.

O’Hara shares the example of $1.45 billion CAP COM Federal Credit Union, Albany, N.Y. and how it positions its car-buying site to entice buyers and increase opportunities for financing. The CU is able to promote its own preferred dealer network and inventory. He adds that by “solidifying the relationship CAP COM FCU has with its dealership partners, it has strengthened a weak link in capturing more loan volume.”

Remember that when leveraged correctly, your car-buying site can enable you to be more than just a loan provider, says O’Hara; you become a “go-to resource” for the entire car shopping experience.

3. Social Channels Are Selling Cars and Loans

Take Shastic, Berkley, Calif., which offers lending tools on Facebook for the financial sector with lead generation and on-the-spot payment comparisons. Sales and Marketing Manager Michael Dittmer explains that CUs can incorporate Shastic’s digital lead generation platform, Calcubot, into their mobile app to encourage engagement. The tool also allows the CU to follow prospective car buyers through the sales funnel.

Buyers engage the system via an interactive estimator on the CU’s website, mobile, Facebook or email channels. Here, the buyer can create an estimate and submit their contact info, which is forwarded to the CU for follow-up or to close the loan.

$174 million InFirst Federal Credit Union, Alexandria, Va., implemented Calcubot in 2016, which helped to increase loan volume by 15 percent. The tool was integrated into the CU’s existing mobile banking app, website and Facebook channels to engage members with financial products. It collected members’ contact information and loan estimate data, feeding it to loan officers in real time. Within four months of implementation, the CU had 25 new loans or credit cards for almost $220,000 in funded loans. This represented a 15 percent increase in loan volume compared to the first part of 2016. 

4. New Car Sales Down; Prices Up

U.S. new vehicle sales were down in June for the sixth month in a row and between 2 to 4 percent less than a year ago. In addition, Edmunds reports that new car prices have increased 12.6 percent since 2011. Wages have also been stagnant. At the same time, terms are getting longer. Experian notes that in the first quarter of this year, 38.6 percent of new loans were in the 61-72-month bucket, and 34.9 percent in the 73-84-month bucket. 

“If you help members deal with affordability by extending their terms, you may take them out of the car-buying market for a long period and potentially create a negative equity situation,” says Richard Epley, CEO of Auto Financial Group, Houston. “One alternative is to look for residual-based financing programs that allow not only for shorter terms and affordable payments but a convenient end-of-term process, so members don’t get hit with hefty fees when turning in their car.”

With residual-based financing, only a portion of the loan’s principal balance is amortized over the term. At the end of the term, the remaining balance is due as one lump sum payment. This helps members to save money on payments while still getting into a car they desire.

5. Influx of Off-Lease Cars

“Lots of [lessees’] terms have expired, and now they’re returning their cars, creating a huge used car inventory,” explains Jessica Golladay, indirect lending manager at $2.6 billion STCU, Spokane, Wash. “This results in cars depreciating faster and an increase of borrowers with high negative equity—as well as an increase in losses,” she adds. Her CU is still actively lending to members but is taking caution with the high loan-to-value loans.

However, Epley sees this surplus of used vehicles as an opportunity to promote residual-based financing programs. “Payments can be up to 40 percent less than a retail loan, and lease or lease-like loans can serve this emerging group. You can also integrate your car buying site to showcase these off-lease cars.”

$1.7 billion Anheuser-Busch Employees’ Credit Union, St. Louis, has seen members benefit from the AFG lease-like balloon product, Value Plus. “We find it beneficial for those who want a lower payment but want to get into a newer car more often or a more expensive or luxury vehicle,” explains VP/Consumer Lending Janice Bruno, a CUES member. “We’ve also seen it help members who are upside down on their trade-in.” The balloon product accounts for 12 percent ($71 million) of the CU’s auto loan volume.

Cochrum also believes that the heavy volume of used cars will drive used car prices down and that these low-price vehicles may be in demand by millennials. “Used car leasing hasn’t been popular in the past decade,” he adds, “but this could very well be an up-and-coming opportunity for lenders.”

6. Millennials Want to Lease

According to Edmunds, 31 percent of new-vehicle sales in 2016 were leased, up from 22 percent in 2012). And over the past five years, lease volume has grown by 91 percent. “If one did not know any better, one would think leasing was created for millennials,” reflects O’Hara, “and with all the benefits that accompany leasing a vehicle, this group wants the latest in technology and safety features in their cars.”

From CU Direct’s 2017 study, State of The Credit Union Auto Lending Market, Cochrum found that millennials leased 8.25 percent more often than other buyers and that 86 percent of all leases were originated by captives. “This points to potential for CUs in the leasing market,” he says.

AFG is introducing a lease product for “in-use” tax states, such as California, Florida, Michigan and Ohio, where the buyer pays sales tax only on the monthly lease payment rather than the full vehicle price. “Along with lowering their payment, it gives millennials access to, rather than ownership of, the vehicle,” explains Epley.

7. More Players Are Entering the Market

Will McGregor, CEO of Integrated™ Lending Technologies, Salt Lake City, sees increasing competition in both indirect and direct lending channels. “It’s connected to the increase in car sales since the Great Recession—which has lured more and different players into the market, including community banks. While we’re seeing a slight pull-back in [car] sales this year, the result is still more competition.”

McGregor says not to discount other transportation trends that may also impact car sales and financing. “Uber, Lyft and other ride-sharing providers are changing how consumers view their transportation needs. Look for newer providers, like Zipcar, which enable the user to pick up a car in ‘Lot A,’ drive it for a time, and then return it to ‘Lot B.’ It’s a step forward in the car rental business and may impact younger millennials in their approach to car ownership,” he adds.

8. Niche Markets

Some CUs are finding success in lending to new markets or to less-established members. 

$230 million 360 Federal Credit Union, Windsor Locks, Conn., reaches out to a variety of segments for their auto lending needs, including those who may have a minimal credit history but the ability to pay. “As a CU, we put into practice the philosophy of making credit accessible to everyone in our field of membership, including those who are underserved,” explains Executive Vice President Karen Bauer. “We don’t solely focus on credit score or credit history; we focus as much on a member’s ability to repay. We also do lunch and learn events to teach members about auto buying as well as other life skills to help them live within their means.”

It does pay to be prudent. “Consider requiring a co-signer if the credit score is weak, to lessen your risk,” offers Cochrum. “While many [CUs] have tried to access this segment, credit scores typically don’t misrepresent a borrower’s probability of default.”

There is another slant when it comes to diversifying your loan base. For example, McGregor has seen CUs finding success in certain types of loan specialization. “Maybe you can find a niche in motorcycle or RV financing and develop relationships with dealers based on your understanding of the market. A motorcycle loan is different from an auto loan, which is different from an RV loan,” he explains. “By learning the intricacies of a niche market, you can stand out among dealers and grow your loans.”

9. Marketing Beyond Billboards

In the past, CUs have generally taken a traditional approach to communications—billboards, radio, statement inserts, newsletters and the like. “Now you need a much more creative approach to capturing your members’ attention, targeting messages to tablets, phones and other devices,” says Bohlman. “You also need to ensure your members’ ease of access in the digital space while delivering specific messages. Innovators are using a blend of intuitive elements to increase engagement, such as real-time information on loans personalized for the user.”

And reaching new, younger markets means targeting what they want—information on the car, the loan and a quick transaction. They also want mobile tools as opposed to walking into a branch or even calling. “While digital offers the opportunity for selling loans, they’re only as strong as your channel or moderator, especially when it comes to social,” reminds Dittmer. “So, if you’re not in that space all the time or don’t have a measured mobile or social strategy, there may be better ways to drive loan traffic to your website.”

10. Demographics Shifting

“Who are your members coming through your doors for an auto loan? Both in-person and digitally? Are they consistent with who you’re trying to reach?” asks Dittmer. “Track online applications and website hits and understand how your digital process is working from beginning to end. From your business plan’s sustainability perspective, what are you doing to balance the risk, such as term length and other market factors? Is your institution’s risk disproportionate to the number and types of leads you’re garnering?” If so, consider modifying your marketing or intake strategies to target the kind of borrowers that fit your business plan.

While auto-buying and financing tools have changed, being at the right place, at the right time, is still key.

“If you (the CU) can be part of the process early, and if you can simplify the process [by] creating an end-to-end user experience, you’ll add value,” reiterates Bohlman. Finally, Cochrum reminds us that all the pieces need to be working well and working together to grow loans. “There is no single solution,” he concludes. “Instead, understand and embrace the changing trends for a multi-solution strategy that works for your CU.”

Stephanie Schwenn Sebring established and managed the marketing departments for three CUs and served in mentorship roles before launching her business. As owner of Fab Prose & Professional Writing, she assists CUs, industry suppliers and any company wanting great content and a clear brand voice. Follow her on Twitter @fabprose.