New Auto Loans Battle Gauntlet of Incentives, Rebates

In 2004 and continuing into 2005, auto dealers and manufacturers have offered a wide variety of incentives to lure potential carbuyers. Find out what these incentives are and credit unions have done own to generate auto loan volume.


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’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 car.

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 auto market.

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.




Jan. 31, 2005


  • very informative