Indirect lending is an important loan program for many credit unions. Indirect loans account for 12.5 percent of the credit union industry’s total loan portfolio and 33.5% of all auto loans. Credit unions that are active in indirect lending, therefore, need to be aware of how dealers perceive their products and services if they want to remain successful.
According to recent surveys by both J.D. Power & Associates and Credit Union Direct Lending, dealers view credit unions as significantly more competitive than other financial institutions when it comes to product rates and terms. In the 2004 J.D. Power & Associates Dealer Financing Satisfaction Study, dealers ranked credit union product rates and terms for new and used vehicles in the 96th percentile versus other financial institutions that received an 88th and 82nd percentile ranking respectively.
Dealers perceive credit unions to be less competitive when it comes to speed and service, however. According to the J.D. Power survey, dealers ranked credit unions in the 82nd percentile in terms of loan processing speed and the 84th percentile in terms of funding speed. In contrast, dealers ranked other financial institutions in the 88th percentile in terms of speed to process and fund the loan.
This perception gap between credit unions and other financial institutions in terms of speed and service is not shared by the credit union community. According to an October 2004 survey conducted by Credit Union Direct Lending, credit unions perceive themselves to be superior to other financial institutions in terms of speed to process and fund a loan. In the CUDL study, credit unions gave themselves a “Better” ranking of 1.23 in terms of speed to fund whereas the dealers surveyed gave credit unions a “Worse” ranking of 0.91 (1.00 is a “Neutral” rating).
Regardless of the reality, perceptions do matter. Auto dealers can and do influence a car buyer’s loan decision since the financing question is often raised on the dealer floor. Credit unions have earned a well-deserved reputation among dealers when it comes to rates and product terms. However, credit unions need to consider how they can improve their performance on speed and service. Closing the perception gap will ensure that credit unions remain a significant player in the auto lending arena.