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By CRIF Lending Solutions
Indirect auto lending is a tough product to manage. Along with the potential risk comes the need to continually gain business from a fickle dealer network while competing with 20-30 other lenders for market share. If the credit union’s indirect lending program is on the skids and you are looking for a jump start in order to compete more effectively, consider these following strategies.
As the economy improves and credit policies loosen a bit, consider allowing higher LTVs or more back-end allowances. Often, giving dealers more wiggle room — within reason, of course — to work and close more deals can result in renewed interest in the program. If the credit union is worried that higher LTVs or back-end is just setting it up for more risk, they can take comfort in the fact that recent analysis of CRIF’s own programs throughout the nation shows an average final LTV of 91%. Remember, at the end of the day, the credit union controls whether its buys the loan or not.
Incentivize dealers and create a sense of loyalty by establishing a preferred dealer program that rewards those who provide more volume and better quality paper with a higher reserve for increased volume. Credit unions can judge dealers performance by looking at criteria such as credit tier, look to book, capture ratio, and portfolio performance. Rewarding high-performing dealers and continuing the strong pipeline of business is always a good move, and creating a tangible incentive for mid-level performers to increase volume will only help your program.
If the credit union doesn’t already conduct a market analysis on a regular basis, starting this process is a great way to identify opportunities in a program. Compare your rate sheet to that of the top lenders in the area and find out if your program is in line with that of competitors. The bottom line is that the credit union always needs to know what’s going on in its market, and it can’t always rely on dealers to provide the necessary information.
Strong dealer relationships are a requirement for a successful indirect lending program, and face time between the credit union’s lending team and the staff at each dealership is the best way to build those relationships. These in-person visits let loan officers get a sense of the how the dealership runs and who runs it, which will give them a better understanding of how to manage applications and underwriting. This also gives underwriters a better sense of who may require more scrutiny when working a deal, thus allowing the credit union to better manage risk.
If dealers are constantly calling the institution to ask for their money, it might be time to review the funding process. While credit unions always have to contend with some degree of sloppy packets coming in from dealers, they should take the opportunity to examine if there is anything that staff can do to speed up the process. Is the overall turn time once you receive a contract for funding competitive in your market? Have you taken the time to train the back office staff in the dealership on your funding checklist to try and clean up some of the packets coming into the credit union? Do you offer an increased funding turn time for dealers that consistently send in clean packets?
One of the most interesting aspects of indirect lending is that every market is different, every program is different, and every credit union has a different approach. But even with all of the differences, there are some overall general rules that have to be followed in order to capture market share in any market. Whether you’re interested in starting a solid program or revving up an existing one, there are some sure paths to success.
For more insights into indirect lending strategies, download our Lender’s Guide to Indirect Lending now.
This sponsored content article is provided to the credit union community for shared insights and knowledge from a recognized solutions provider in the industry. Please note that the views and opinions offered here do not reflect those of Callahan & Associates, and Callahan does not endorse vendors or the solutions they offer.
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March 4, 2013
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