New auto sales were strong in 2004 with 16.8 million vehicles being sold, an
increase of 200,000 vehicles from last year. In credit union land, the top 5
credit unions in new auto loans outstanding saw their balances grow by an average
of 14.14%. Throughout this time, credit unions faced some unique strategies
and incentives from manufacturers, dealers and other financial institutions.
After a slow November in sales, the average incentive that a manufacturer offered
jumped up to $2,512 in December 2004 from $2,395 in November. The jump can be
partly attributed to manufacturers offering holiday specials and year-end clearances.
For domestic vehicles, the average incentive was $3,420 and there was a $1,570
average incentive for imports. This data is according to Edmunds.com’s
True Cost of Incentives Measure.
In addition to the standard manufacturer incentive of rebates, some manufacturers
have chosen unique strategies to entice consumers. Volkswagen has started an
In the Car program where they offer free insurance to purchasers of their new
vehicles. The buyer gets one year of automobile liability and physical damage
insurance coverage through Nationwide Insurance. They have used this strategy
to attract younger consumers who normally pay high insurance costs. The incentive
is worth about $1,300 to $3,000 and right now is only offered through dealers
in Illinois and Wisconsin.
On the dealer front, many dealers have been attracting new car buyers through
offers of 0% financing. While this has lured many potential buyers into dealerships,
there are some drawbacks to this incentive. For one, 0% financing usually carries
a higher monthly payment. Dealers may also require the buyer to pay the full
sticker price, have a near perfect credit rating or post a large down payment.
In addition, the buyer can wind up paying more than the market value of the
To compete with dealer and manufacturer incentives, credit unions are using
a wide variety of tactics to entice their members to finance their vehicle through
them. One area where more credit unions are getting involved is indirect lending,
where the credit union creates a partnership with local dealers. Some credit
unions have implemented auto loan recapture programs where they get their members
to re-finance their vehicle at a better rate. Credit unions will need to use
innovative strategies like these if they want to stay competitive in the new
Recently, three credit unions shared their success stories in generating new
auto loans in a webinar entitled Capturing New Auto Loans in a Period of Low
Rates, No Rate and Rebates. To access a streaming webcast of this webinar, click here. This webinar was part of the Callahan's Quarterly Auto Lending Webinar Series - for a list of other topics covered in the series, click here.