Being At The Point Of Sale

Indirect lending is one route to attracting auto loans in a tough economy.


While the auto market is starting to recover, it’s not setting any records. Just more than 1 million cars and trucks were sold in June 2011, an increase of almost 7% from last June, but below the annualized rate of 11.4 million the industry had originally forecast. In the first quarter of 2011, credit union auto lending declined 3.2%. While used auto lending continued to stay in positive territory at 4.4%, it couldn’t make up for the decline of 13.7% in new autos.

As captive financers and banks come back into the market, credit unions need to be more aggressive in keeping their auto loan offerings front and center with their members. One strategy that credit unions are finding some success with is point-of-sale, or indirect lending. “To be effective in the auto lending, you have to be at the point of sale,” says Mike Chapman, senior vice president of lending at Security Service Federal Credit Union ($6.5B, San Antonio, TX)  “Our members know that they can go to any of the dealers in our areas, and they know that [we will] be there with them. That’s been very successful to us.”

Today, just more than one quarter of credit unions in the U.S.participates in indirect lending, and indirect loans account for 43% of the total auto loan portfolio. Credit unions can set up relationships directly with their local dealers or they can join a third-party network to manage those dealer relationships. Today, over two-thirds of credit unions with indirect programs have established direct relationships with dealers; 44% use a third-party to manage the relationship. The overlap comes from the 12% who use both channels.

Today credit unions in all 50 states hold $50.4 billion in direct loans attracted through dealer direct relationships, and another $20.3 billion acquired through third-party managed program.

Participation ranges from a high of 66% inArizonadown to just 6% inNew Jersey. The highest participation rates (more than 40% of credit unions) are concentrated primarily in the West and Plains states, with the lowest participation rates in the Mid-Atlantic and Southeast.

Indirect loans posted a slight higher delinquency rate than the overall loan portfolio, on average 20 basis points, until 2009. Starting in the first quarter of 2009, the overall delinquency rate rose above indirect delinquency rate for the first time. The delinquency rate for indirect loans stayed relatively level throughout 2009 and then dropped over 50 basis points from its peak in the fourth quarter of 2008 “The delinquency rate for indirect loans reached a peak in the fourth quarter of 2008, stayed relatively level throughout 2009 then dropped more than 50 basis points. Today, it stands at 0.93%, exactly 70 basis points below the overall loan portfolio.


Success at holding the delinquency rate down varies by geography. Below is a map of indirect delinquency rates by state so any credit union can compare how they are doing compared to their geographic neighbors.

Indirect Loan Delinquency Rate by State




July 18, 2011



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