Loan Zone: How to Drive Auto Loans Forward

Toby Hayes and his family were shopping for a new car a few months back. “We went to a dealership and never said anything about being a member of or working at SAFE Federal Credit Union,” explains Hayes, VP/marketing for the $1 billion CU in Sumter, S.C. “As we were picking out a car and finalizing the details, the finance guy came to me and said, ‘We've got a great deal for you, and it's with SAFE Federal Credit Union. We're going to sign your paperwork and you'll be out of here in 20 minutes.’ To me, that was remarkable, because the program we've built here at SAFE is really a testament to convenience and growth of our loan portfolio.”

Indeed, leaders of SAFE Federal Credit Union attribute its considerable success with auto lending to the CU’s behind-the-scenes work to establish great relationships with dealers and also to the way it ensures its indirect program protects members and supports the credit union’s success.

What kind of success are we talking about?

During its spring 2017 “Drive You Forward” promotion, SAFE FCU set an auto loan record of $79.4 million, generating more than 3,000 loans and adding almost 2,000 new members. The total volume of new loans during the 10-week campaign was 13 percent higher than the previous record of $70 million, set in the spring of 2016. For the promotion period, the CU offered interest rates as low as 2.24 percent for up to 60 months, well below its usual 2.99 percent auto loan rate. And, $50 million of the total loan volume was in the form of indirect lending through SAFE FCU, but initiated at the dealer. 

The fall 2017 promotion did even better, generating $101 million through 3,880 loans and adding 2,280 new members.

“We've seen a trend toward indirect,” says Ronnie Warner, VP/lending. “We offered it more as a one-stop shopping thing. Our members could go straight to the dealership and get the same terms as if they'd come into our brick-and-mortar branches. And we feel like that helped that part of it grow.”

Inspired Indirect

A lot of building a good indirect lending program has to do with “building relationships with the dealers and making things more convenient for them,” Hayes adds. For nine years the CU has had an indirect relationship manager for its 70-plus dealer network.

“One thing he does is, if there's turnover or a change in management at a dealership or with the finance area, he'll go out and train them on our products, and make sure they understand how things work,” Warner says. “So, we do a lot of active work to avoid any issues that make the process inconvenient for members. Those issues are few and far between, but if we have to, we'll go out and work with the dealer and, if problems persist, we'll cut that dealer off and move on to the next one.”

Several elements drove the success of the loan campaign. SAFE FCU offered an attractive rate and advertised heavily, emphasizing loan pre-approvals. Television advertising, which highlighted how the CU’s auto loans fit every stage of members’ lives, also appeared to resonate very well.

But importantly, the CU did well with indirect from this promotion in part because members know the CU is looking out for their best interests. For example, it doesn’t allow dealers to upcharge.

“The dealers can offer after-market products or back-end products such as GAP, warranty coverages, etc.,” Warner explains. “But the way we try to protect our members is to have a cap on how much dealers can add for miscellaneous products.”

Members may also be embracing the opportunity presented by regularly scheduled promotions.

“On the direct side, we've had these campaigns for more than a decade, and our members have come to anticipate it,” explains Warner.” Our campaigns usually start in March and September, and usually in February and late August, our loan staffers will start getting calls about when the promotion is going to start, what the lowest rates will be. So, our membership has helped us by word of mouth.”

Sometimes indirect loans are thought to be lesser credit than direct loans. Warner says the CU manages concentration concerns by looking at the portfolio balance every month.

“We look at the difference between direct and indirect,” he says. “We also have a robust credit card program and we offer mortgage services. We're trying to boost our growth in mortgages to balance out the auto lending.

“Another thing we look at is that the average time on the books for an auto loan is 27 months, give or take, so our auto portfolio is rolling over about every two years or two years and two months. So part of our strategy is to offer diversified rates and diversified terms throughout our other product offerings, not just the auto loans.

“Auto lending has helped us grow from the small credit union we were in the 1950s—that's what got us here. So, it will always be a key part of our lending operation. But we're over a billion dollars now, and we're trying to diversify and bestow more resources on some of the other products we've developed to balance it out.

Next Step: Deepening Indirect Relationships

Helping indirect members take advantage of other CU offerings has long been a thorn in credit unions’ sides. Hayes is trying to deepen SAFE FCU’s indirect relationships by developing an onboarding process for the CU as a whole.

"But we're starting with auto lending with our indirect members, reaching out and showing them everything we have to offer,” he says. “Credit unions have the reputation as being ‘checking, savings and auto loans.’ But there's more than 50 products and services that we offer, and a lot of people don't realize that.

Hayes underscores the fact that the number of indirect members has increased over the last few years, in synch with the timing of these promotions. “We've realized that this isn't going away, and it's really an opportunity for us to capitalize on these relationships,” he says.

Glenn Harrison is a freelance writer based in Wisconsin.

Lisa Hochgraf is CUES’ senior editor.