CEO Perspective: Auto Lending Fundamentals

I believe auto lending boils down to fundamentals – in football this would be called “blocking and tackling.”


This narrative with Wayne Vann, CEO of Navy Army Federal Credit Union ($882M in Corpus Christi, TX) was taken from the 2010 Credit Union Directory.

I've been in auto lending for more than 30 years, 21 of which at this credit union. I believe auto lending boils down to fundamentals -- in football this would be called "blocking and tackling."

The fundamentals of successful auto lending are: 1) intimately know your community; 2) understand how to price to your community; 3) hire people who understand car sales; 4) build strong relationships to both members and dealers; and 5) don't be risk-averse. Nearly everyone I know who is successful at auto lending follows these fundaments, and nearly all of them also have indirect programs, because it's pretty difficult to earn a significant segment of a local market without one (possible, but difficult).

Let's look at the fundaments one by one from the perspective of my own credit union. First, we concentrate in our local market here around Corpus Christi. We know these people well. We've been serving them for decades. We maintain our focus on them.

Second, we know their range of credit scores. We know where the weaknesses are. About 35% of our portfolio is in C and D paper and we have become pretty good at pricing our loans to make sure the portfolio is robust.

Third, don't think you can establish an auto loan program overnight and by putting just anyone in the auto lending department. The man at our indirect desk worked on new and used car lots. He had no experience in financial institutions when he came to us eight years ago, but he knew and knows auto sales from the ground up -- and dealers really appreciate that. Moreover, the man who runs our lending operation previously managed a Honda dealership. If you want to be a significant player in auto lending it helps to have individuals on the team who understand the auto business.

Fourth, build and sustain good relations with dealers. Little infuriates dealers more than companies coming in to help them then soon getting out of the business. And build strong relationships with members. We have a sales culture; our frontline staff work very hard it this, which is really key in our area because if you give superior service and work well with one person in an Hispanic family, that person will refer you to everyone else in the family – you'll have that family's business forever. And it's important that our frontline people have lending authority -- it's too hard for them to build relationships when they don't.

Last, if you want to have an extensive auto program, you can't deal just with the A and B paper; you have to work with the C and D. And this brings us back to knowing the community and knowing how to price. We've found that our C and D people reward us very well for the risks we take with them.

Auto lending has had the same fundamentals for decades and I think it always will. "Blocking and tackling:" That gets the job done.