4 Strategies to Retain Market Share in a 0% Lending Environment

Competition for vehicle loans is increasing as banks and manufactures re-assert themselves into consumer lending, but credit unions are poised to offer programs, rates and value- added services.


In an effort to reduce lingering inventory on dealer lots, GM announced that it will pay dealers $7,000 for every vehicle in the Saturn and Pontiac lines left on lots. The initiative helps GM remove the vehicles as assets on its balance sheet and incentivizes dealers to push the vehicles off the lots. Dealers who take advantage of the payout will outright own the cars and can pass along a portion of or all of the savings to the buyer. The payout expires January 4.

Manufacturer programs such as this are increasing competition in the auto lending market at a time when banks are re-upping lending efforts dropped in the past few months. Staying ahead in a competitive automotive market is not easy, but there are a few strategies that can help credit unions retain market share and serve members.

  1. Indirect Lending
    Indirect lending can potentially challenge asset quality, but it remains a crucial source of growth. Over the past 18 months, banks have tightened lending standards on consumer loans, all but abandoning indirect lending. Credit unions filled that void by increasing their footprint in the declining lending market. The industry captured 22.7 percent of the auto financing market in January 2009. Through September, indirect auto loan balances rose to a record $78.9 billion, representing 43.9 percent of the industry's total auto portfolio.

    In low-rate environments, history suggests credit unions can build loan balances with their own low-rate incentives. The low rates offered by credit unions at the end of 2004 encouraged new auto financing and increased industry auto loans by $8.7 billion.

    Tighter financing standards in 2009 helped credit unions establish a foothold with dealers who were re-evaluating strategies and financial partnerships. A well-managed dealer relationship can, in turn, help credit unions reinforce their loan quality. Moving forward, credit unions can build upon these dealer relationships with available financing, competitive rates and superior service. 
  2. Auto Loan Recapture
    Credit unions are capturing more than 20 percent of market vehicle financing, which means. Although this is record-high market share for credit unions, it also means, conversely, almost 80 percent of the market is going elsewhere for a car loan. Recapturing that market share presents a significant opportunity to grow loan portfolios.

    Members who finance through other sources want affordable rates and responsible advice. Recapture programs can be a growth catalyst for this key segment of the credit union loan portfolio. Identify members with auto loans at other institutions, and then offer a more competitive rate and added value. Encourage front-line staff and other relevant departments to tailor their approaches and member interactions to auto recapture programs, such as a co-branded SEG campaign that combines a great deal with added value. Ultimately, always offer more than a better rate. Package a good rate with an incentive to refinance, such as a gift card based on the loan amount. Make an effort to educate every member – through car buying guides, newsletters or seminars – to convey the credit union’s value. For successful programs, align recapture efforts with market fluctuations. Especially during low-rate activity, credit unions should diversify efforts to strengthen their auto loan portfolio. Staying proactive might help them avoid fallout from sales fluctuations.
  3. Retail Lots
    With growth comes growing pains. Repossessed inventory increased 4.5 percent from September 2008 to September 2009, reaching $290.7 million at the end of the third quarter. With unemployment hovering around 10 percent, foreclosed and repossessed assets will likely increase before declining, but credit unions can remain competitive in the auto market.

    Credit unions such as Tinker Federal Credit Union ($2B, Oklahoma City, OK) and Truliant Federal Credit Union ($1.3B, Winston Salem, MA) are moving repossessed vehicle inventory off their balance sheets and capturing new loans through credit union retail lots.

    Tinker FCU sells 40 to 50 repossessed vehicles every month through its retail lot. The credit union typically recoups $2,200-$2,300 above book value and finances approximately 85 percent of the lot’s sales. Truliant’s partner CUSO, Credit Union Auto Buying Services, sells upward of 200 vehicles every month. Truliant, in turn, provides tailored financing options that other dealers can not – or will not – offer.

    These retail lots build relationships with the community, increase member loyalty and engender positive word-of-mouth advertising, three variables that help credit unions stay competitive in a low-rate environment.
  4. Partnerships
    Teaming up with entities that offer concurrent services is an unexplored opportunity for many credit unions. For example, Navy Federal Credit Union ($40B, Merrifield, VA) offers its members access to certified, pre-owned vehicles through Enterprise Rent-A-Car’s sales division, Enterprise Car Sales. Through this partnership, Enterprise directs all financing for credit union members back to Navy. In turn, members have access to more than 500,000 vehicles in more than 60 makes and models.

    Enterprise wants to sell cars; the credit union wants to increase its market portfolio; both get what they want in this partnership. Additional credit union member benefits – such as a limited warranty, a repurchase policy and the ability to trade-in – makes taking advantage of the partnership an economical alternative to even the lowest rate offered by manufacturers.