How Educators Insourced For Car-Buying Success

It’s taken more than a decade, but this Wisconsin credit union has fine-tuned its car-buying services to benefit members and increase its loan portfolio.

 
 

There’ve been a lot of twists and turns in Educators Credit Union’s drive to provide the best auto-buying experience it can in the seven counties it serves in southeast Wisconsin.

In the past 15 years, Educators ($1.56B, Racine, WI) has gone from a multi-credit union CUSO, to its own in-house sales operation complete with used car lot, to turning over sales to a third-party operator, a former employee who now works with Educators’ own CUSO as his exclusive in-house financing partner.

Jim Henderson, Educators’ chief marketing officer, says the journey began when about a dozen credit unions created a CUSO to provide their members with no-haggle pricing and credit union financing from local dealers.

Doing business as the CU Fleet Department, that CUSO grew up to 20 credit unions as more small- and mid-sized credit unions signed on. It worked for Educators for a while, but according to Henderson, the decision was made after several years to move on because of differences over pricing and operating efficiencies.

“We felt it was becoming more like a traditional dealership,” the Educators CMO says. “That was the whole reason we went to the CUSO model in the first place.”

In response, Educators left the CU Fleet Department and set up its own retail used car operation, taking along one of the CUSO’s management employees and a top sales person, Henderson says.

“Although we parted ways with them, we actually got some of their expertise in these two people who shared a similar philosophy to what we wanted to do,” Henderson says, adding that one of those employees still oversees the credit union’s auto referral and leasing business.

CU QUICK FACTS

EDUCATORS CREDIT UNION
Data as of 09.30.15
  • HQ: Racine, WI
  • ASSETS: $1.6B
  • MEMBERS: 135,356
  • BRANCHES: 19
  • 12-MO SHARE GROWTH: 3.13%
  • 12-MO LOAN GROWTH: 5.77%
  • ROA: 0.94%

That business structure — which included the credit union buying cars it then sold in a lot at one of its branches — worked well until about 2010, when the state of Wisconsin clarified rules to forbid that structure. So, what to do next?

“We partnered with our former car manager, who got his own commercial loan and rents the retail lot space from us,” Henderson says. “He now operates it as a separate, third-party operation called AutoWerks.”

And an in-house CUSO Educators formed originally to handle investments now handles auto financing. AutoWerks, meanwhile, has continued the no-hassle pricing philosophy and other consumer-friendly practices such as a three-day return policy and a 60-day safety net against mechanical repairs.

“Those three things are not common in used car sales,” Henderson says.

Through all these changes, one thing has stayed constant for the Wisconsin credit union.

“We’ve always wanted to help our members in the car-buying process,” Henderson says, “It’s a bit upsetting to see them come in for financing and find they’re paying sticker price for a car they probably could purchase at invoice.”

“Controlling the transaction and getting the member a better deal from the start is easier than trying to change the deal after that fact,” Henderson continues.

To help drive that bargain for members, Educators has four people on staff working with the car-buying service. Two of them are at the branch that shares space with the AutoWerks retail lot in Sturtevant, WI, and two are at other Educators branches.

We felt it was becoming more like a traditional dealership, and that was the whole reason we went to the CUSO model in the first place.

Henderson says these employees help new and potential new members decide between buying and leasing and also whether the best deal for them is a referral to AutoWerks or one of the dozens of other new and used car dealers the credit union works with in the area, dealers that have agreed to the no-hassle pricing practices.

Those options also include a leasing arrangement in which Educators buys the car and leases it to the member through its own CUSO, ECU Financial Services Inc. Henderson says those four employees actually work for the CUSO, which does business under the name Educators Auto & Lease.

And although Educators is the in-house financing partner for AutoWerks, the dealership also sells cars to non-members and doesn’t make the decision for buyers on where to finance their new ride. However, the convenience factor of having the credit union branch on-site adds to the appeal.

“We do pre-approvals and financing and can nearly complete the loan on the spot if the person decides that day,” Henderson says.

Educators overall car-buying program works. Henderson says leasing has been growing at 15% to 20% a year and now is close to 35 vehicles a month. Altogether, 1,700 members used one of the services last year, whether through AutoWerks, leasing through the credit union, or buying at one of the dealer networks.

That accounted for $34 million in lending activity as Educators grew its auto loan portfolio by 6.40% from September 2014 to September 2015, from $144.59 million to $158.84 million.

The credit union philosophy extends beyond the AutoWerks lot, too.

“The agreement we have with all our dealer partners is that if they have some special financing, like 0% for five years or something, we’ll let the member know that’s a potentially better deal for them,” Henderson says.

— Marc Rapport contributed to this article.

 

 

 

Nov. 9, 2015


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