The Power Of The Powertrain: Get Members The Simplest VSA Program

Competition among finance and insurance products in the dealer showroom is heating up.

 

By IWS

 

As most credit union executives know, auto dealers are often a strong source of indirect lending revenue. But few appreciate that those same interest-income-based relationships may be quietly eating their credit unions’ lunch. Or worse, dealers’ hunger for profit may be indirectly helping to transition your members’ financing to the competition. The solution might be your credit union’s own direct, self-administered Powertrain VSA coverage program designed to best serve your members and build a revenue stream.

The Dealer Took My Lunch Money

A December article in Automotive Finance News — “In-Store Kiosks Put F&I At the Consumer’s Fingertips” — made it clear that back-end, non-interest income products like vehicle protection plans often represent up to 50% of total profits made by dealers on an auto sale. And, with industry heavyweights like AutoNation branding their own finance and insurance (F&I) products, the dealer marketplace is poised to fight for every last F&I dollar.  

On the heels of digital credit/loan applications, digital F&I tools, and in-showroom, product kiosks are the logical next step. That means right there, on the dealer’s showroom floor, part of your NII stream and member relationship might be at risk.      

Delivering Value Is The Relationship Differentiator

According to a 2014 Callahan poll of credit union lending executives, a full 84% of those surveyed listed Vehicle Service Agreements and Mechanical Breakdown Insurance (VSA/MBI) as a Top NII Source By Value To Members.

An August 2014 article for CreditUnions.com — “Strengthen Your Non-Interest Income Strategy With Three Questions” — offered that the key to a successful NII program is to partner with a credit union-dedicated firm that specializes in creating custom, self-administered programs and products that maximize member value.  

As F&I vendors, most dealers sell/broker product just to maximize profits and then move on to the next sale. But in our industry, credit unions’ purpose is to help create the proper sales environment to facilitate the best process, pricing, and product approach for each member’s specific needs. That’s how credit unions build deeper and broader long-term relationships. 

Who’s to say that in the absence of the VSA coverage a member might simply have junked the vehicle — and if it was financed, defaulted on the loan?

For instance, Hyundai is respected for its 100,000-mile powertrain warranty. But few know that the warranty is often granted only to the vehicle’s first owner; and in some instances, it may not be transferrable. Member value is created by working with a partner who knows both the credit union community and the auto industry, and can offer insights, as well as a risk- and budget-based, affordable powertrain VSA option customized to specific member needs. Delivering that value builds the trust factor needed to cement a long-term relationship.

A Guy Walks Into A Credit Union

From El Segundo, CA, and Corpus Christi, TX, to Minot, ND, and Hialeah, FL, credit unions continue to serve the members of our nation’s diverse communities. For many members, they have not yet felt the burgeoning economy. A decent used vehicle continues to be a major purchase, so they come to their trusted credit union for financing. They’ve saved for the down payment, tax, and title, and have budgeted for the monthly car and insurance payments. But how many have set aside a proverbial rainy day fund for material mechanical breakdown repairs?  

An unexpected, high-cost repair might lead to a loss of transportation, which might lead to a job loss and potentially a loan default (particularly if the repair cost is comparable to — or even exceeds — the value of the vehicle). Here are some IWS claims recently paid:

  • 2004 Mercedes 320 – engine replacement, $3,471 (KBB Value ~ $8,200)
  • 2005 Pontiac Grand Prix – transmission repair, $2,641 (KBB Value ~ $5,100)
  • 2005 Ford Mustang – transmission repair, $1,676 (KBB Value ~ $7,800)

Who’s to say that in the absence of the VSA coverage a member might simply have junked the vehicle — and if it was financed, defaulted on the loan? 

The Power Of The Powertrain

Credit unions are intimately familiar with comprehensive VSA programs. By covering air conditioning systems, braking, and steering systems, electrical systems, etc., the best plans offer full coverage that often exceeds the manufacturers’ warranties. The downside, however, is that broad VSA coverage comes at a higher price. And for buyers of late-model used vehicles in particular, value may trump price. The powertrain product balances the two.

Powertrain programs cover a vehicle’s engine, fuel pump, turbo chargers, transmissions, transfer units, drive axles and shafts, center supports, and universal joints, as well as powertrain-related seals and gaskets — the mechanical things that make a car go “vroom-vroom” and power passengers from point A to B. And not coincidently, these parts experience the greatest wear and tear, break down more often, and cost the most to repair and replace. 

With vehicles having thousands of parts, our powertrain VSAs have covered repairs on close to a half a million powertrain-related components. This represents an average of 40% of all IWS’ claims dollars paid each year since our founding 24 years ago. With IWS VSAs, your members benefit by purchasing affordable, value-based products from an experienced, credit union-dedicated partner within the direct auto lending ecosystem.

Optimized Member Service And Value

What is the best way to deliver member value through a powertrain program? Select a VSA/MBI partner who will serve as your team’s go-to expert — a proven, vested-interest provider that offers product-knowledge and service support in real time, exclusively for the credit union channel. A vertically integrated service provider that creates its own program, directly supports its products, manages its claims and prices its products across multiple rating groups (often at a significant price break to members) — that is a win/win for both your credit union and your members.

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For a complimentary needs assessment and VSA/MBI service provider contact IWS at 800-333-3028

 

Jim Hawk is President and CEO of IWS, a leading national provider of vehicle protection products exclusively serving credit unions. It is headquartered in Boca Raton, FL. For more information, visit www.iwsgroup.com.

 

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 ads@creditunions.com or 1-800-446-7453.

 

Jan. 26, 2015


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