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By Members Private Sale
Today’s credit unions have access to deposits that are cheaper than ever before. So why isn’t it easier to make money off of these low-cost deposits? Most credit unions are finding it harder, not easier, to get these funds into the hands of borrowers instead of into low-yielding investments. While a few credit unions have figured it out, most are still fighting hard for loan business.
Traditionally, credit unions’ bread and butter has been auto lending, but times have changed. With the majority of loan volume typically coming from the indirect channel, credit unions have to work harder to capture their share of the auto loan market. How do smaller credit unions – 6,000 of which are under $100 million in assets – get their share?
Several trends are changing how credit unions define their direct lending strategies. First, consumers are buying more cars online. Not surprisingly, a 2011 Cap Gemini study reported members’ comfort level with buying a car online has grown dramatically over the last 10 years. In addition, according to a 2011 Manheim report, 30% of members will buy a car from a private seller – not a dealer. Contrary to popular belief, craigslist has the vast majority of the private sale listings online. What if credit unions could provide members with a branded private sale alternative to meeting a stranger in a random parking lot at 8 pm?
Second, because of changes in consumer behavior, dealers are shifting their focus to online sales in hopes of not just selling more cars, but more auto loans. A recent survey of Autotrader.com inventory showed that less than 10% of the used car listings originated from consumers. Profit pools from used cars, service contracts, and lending are only accelerating this trend. According the National Automobile Dealers Association’s 2011 statistics, auto dealers make little to no profit in new cars. Therefore, they aggressively try to capture auto loans by matching or beating credit union loan rates. Also, they continue to sell GAP insurance and extended warranties for twice the price of credit union products – costing members another $2,000 - $4,000 on average. What if credit unions could help their members buy and sell vehicles at the private sale price and save thousands on the warranty too?
Many credit unions have dealt with soft direct lending performance by creating indirect lending programs. Unfortunately, this has created its own set of problems. First, indirect loans have 2.5 times the default rate of direct loans. Secondly, credit unions lose the opportunity to create a relationship with their members. Finally, credit unions lose the income opportunity from upselling GAP and extended warranties.
Additionally, remote delivery trends suggest future loan growth will come from the call center and website. These channels are especially important for the Gen-Y buyers. If today’s credit unions want high volume auto loan business, it will have to come from their remote channels. That business is not going to walk into branches anymore.
Credit unions that do leverage these trends will also find they’re better serving their most valuable asset — their members.
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.
If you are interested in contributing an article on CreditUnions.com, please contact our Callahan Media team at firstname.lastname@example.org or 1-800-446-7453.
October 1, 2012
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