3 Strategies To Improve Partnerships With Preferred Auto Dealers

Stronger credit union-auto dealer partnerships can save members money and strengthen an institution’s bottom line.

 
 

Not all auto dealerships are the same. Some are easier to work with and provide a better consumer experience. To make the most of these resources, credit unions have developed preferred auto dealership programs that strengthen professional relationships and benefit the member though lower rates and expedited funding.

“We wanted to deepen the relationship as opposed to our credit union being another financial institution in a drop down box to send a loan to,” says Dave Heffner, vice president of lending at Community Financial Credit Union ($644.0M, Plymouth, MI).

Here, Ent Federal Credit Union ($4.1B, Colorado Springs, CO), Community Financial Credit Union, and Catholic Vantage Financial Credit Union ($84.7M, Livonia, MI) share preferred auto dealer strategies.

Eliminate Hurry Up And Wait

CU QUICK FACTS

Ent federal Credit Union
Data as of 03.31.15
  • HQ: Colorado Springs, CO
  • ASSETS: $4.1B
  • MEMBERS: 250,044
  • BRANCHES: 29
  • 12-MO SHARE GROWTH: 5.18%
  • 12-MO LOAN GROWTH: 21.82%

Ent’s preferred dealer program, called the Express Program, started eight years ago with only a few dealerships. Today, the Express Program counts nearly 60 dealers as partners. That’s more than one-third of the credit union’s 150 total dealer partners.

Ent started the program because it wanted to increase its indirect business, but it didn’t want to buy deeper into a single dealer’s pool of available loans and take on more high-risk paper. It did, however, want to gain a greater piece of business. So it improved its service levels.

INDIRECT AUTO LOANS/ TOTAL AUTO LOANS
For Ent Federal Credit Union | Data as of 03.31.15
© Callahan & Associates | www.creditunions.com

Indirect_Auto_Loans_Total_Auto_Loans_Ent

Source: Peer-to-Peer Analytics by Callahan & Associates 

“Dealers tend to get busy all at once,” says Scott Gennerman, Ent’s manager of indirect lending. “And when they are busy, dealers don’t have time to submit the deals. They do what is easy and convenient.”

The Express Program assures partner dealerships that Ent will approve loan applications that meet a specific standard. That standard is set forth in its Express Checklist, a file a dealer must submit with the loan application that provides a quickly reviewable snapshot of the applicant’s credit worthiness.

“These are the top dealerships in our market and they send us good business,” says Jon Paukovich, Ent’s senior vice president and chief lending officer. “All they have to do is review the checklist.”

The Express Checklist verifies an applicant’s credit score — which must be 690 or higher — and active trade lines — they must have at least five, one of which is longer than four years. In addition, an applicant cannot have more than $500 in derogatory credit or a history with the Consumer Credit Counseling Service. Ent restricts the loans to 18% payment-to-income and requires a minimum income of $2,500 a month.

When they are busy, dealers they don’t have time to submit the deals. They do what is easy and convenient. 


It’s straightforward, but there’s still a training curve to the Express Checklist, says Gennerman. 

“We don’t want them putting an Express Checklist on any loan and sending it in,” he says. “That creates a disservice: if it doesn’t meet the criteria, we don’t want it. We have to send it back to the dealership.”

That learning curve is one reason the credit union has no plans to expand the program past its current numbers. Ent has an excellent working relationship with its Express Program dealers and trusts them to send quality business. And they do; more than half of Ent’s indirect volume comes from the Express Program, according to Gennerman.

All Hands On Deck For Education

More than a year ago, Community Financial started to focus on a group of 13 dealerships as part of its preferred dealer strategy.

CU QUICK FACTS

community financial Credit Union
Data as of 03.31.15
  • HQ: Plymouth, MI
  • ASSETS: $644.0M
  • MEMBERS: 59,887
  • BRANCHES: 11
  • 12-MO SHARE GROWTH: 7.58%
  • 12-MO LOAN GROWTH: 15.15%

“We’ve either built good relationships with these dealers over the years or we feel they have the potential to be good volume dealerships,” Heffner says of this group. “We think they all do business the right way.”

When these dealers submit loan applications, the credit union funds them more quickly than it does others — within a day compared to the two or three it takes with non-preferred dealers.

If our sales staff decides we aren’t getting what we want, we don’t waste our time. We get another dealership. 

But instead of simply telling dealers it would fun their loans more quickly, Community Financial also educates dealers to make sure they understood the program and provide the correct materials.

“One of the challenges in this industry is that you get approvals but the package is missing parts or not filled out properly,” Heffner says. “The dealer wants their money and we’re saying we need it signed a certain way before we can fund it. If we have to go back fewer times, everyone wins.”

To that end, the sales team offers on-site assistance at dealerships that require further information on consultation. It also encourages dealer partners to call lending personnel such as underwriters. Heffner himself has participated on a few of these calls.

“We are talking about our programs with these dealers more often,” Heffner says. “I think that’s part of why we’ve had some good success thus far this year.”

Heffner did not have second quarter numbers and thus declined to provide specifics, but he says he expects year-to-date indirect volume from its 13 preferred dealers to outpace the same period’s figures from 2014.

INDIRECT AUTO LOANS/ TOTAL AUTO LOANS
For Community Financial Credit Union | Data as of 03.31.15
© Callahan & Associates | www.creditunions.com

Indirect_Auto_Loans_Total_Auto_Loans_Community_Financial

Source: Peer-to-Peer Analytics by Callahan & Associates 

Heffner also expects the credit union will alter that number of preferred deals. In fact, looking at which dealers were the largest producers of indirect volume is something the lending, sales, and management teams discuss quarterly. They look at how the dealers’ funding ratios have changed and amend the partner list accordingly.

“We talk about whether these guys are doing what we want them to do, are they sending us business, and are they are sending us stuff we can approve,” Heffner says. “If our sales staff decides we aren’t getting what we want, we don’t waste our time. We get another dealership.”


Every Member, Every Time

Michelle Micallef, the vice president of lending at Catholic Vantage Financial, might be new to the credit union, but she’s worked in lending at credit unions in the southeastern Michigan area for years. It’s her experience with a preferred dealer program at a past institution that led her to push Catholic Vantage to create something similar.

The credit union’s preferred dealer program is live after getting board approval on July 21. When building it, Micallef had the credit union focus on one goal: to turn indirect relationships into strong members.

CU QUICK FACTS

catholic vantage financial Credit Union
Data as of 03.31.15
  • HQ: Livonia, MI
  • ASSETS: $84.7M
  • MEMBERS: 7,210
  • BRANCHES: 2
  • 12-MO SHARE GROWTH: 2.01%
  • 12-MO LOAN GROWTH: 22.33%

“I can turn an indirect deal into a full-blown member with direct deposit and a checking account,” she says. “And I can typically get two to three loans on top of the indirect loan.

Catholic Vantage designed a program in which dealerships are contractually obligated to send applications to the credit union. Once the credit union funds these loans, its sales department onboards each new member, starting with an introductory phone call. Micallef calls this approach, “Every member, every time.” On this call, sales people describe the preferred relationship the credit union has with the dealer and asks the member about their dealer experience.

“We want to hear about it,” Micallef says. “And that really intrigues them. ‘The credit union wants to hear about my relationship with the dealer?’”

INDIRECT LOANS/ TOTAL AUTO LOANS
For Catholic Vantage Financial Credit Union | Data as of 03.31.15
© Callahan & Associates | www.creditunions.com

Indirect_Auto_Loans_Total_Auto_Loans_Catholic_Vantage

Source: Peer-to-Peer Analytics by Callahan & Associates 

If a member complains about the experience, Catholic Vantage tells the member it will pass the criticism on to the dealer to identify the hiccup in the process or to improve that experience.

I want their checking account. I want their credit card. I want all of their business. 

To turn the conversation from dealer experience into financial services needs, the credit union pulls a credit report before the introductory conversation. Sales people ask if the member would like to learn about the credit union products they qualify for that will save them money. That consultation can happen over the phone or in-person at a branch.

“I’ve already gone through the credit report and I know what interest rates they are paying on other loans,” Micallef says. “I know what I can offer them.”

Before this preferred dealer program, the credit union got 80% of indirect members to add an additional product from Catholic Vantage. For the 20 credit unions it considers preferred dealers, chosen based on prior relationship, Micallef aims to turn that into 90%.

“We are into it to save the members money on interest,” Micallef says. “But we’re also into it to make full-blown members. I want their checking account. I want their credit card. I want all of their business.”