This year credit unions established an industry first by participating in a
booth at the National Automobile Dealers Association's (NADA) annual convention
in Las Vegas. This is the nation's premiere auto retailing show, attended in
early February by more than 30,000 auto dealer personnel.
The exhibit hall listed over 560 companies, some with booth spaces the size
of a basketball court. Over 50 credit unions from 23 states joined to sponsor
the "America's Credit Unions-80 Million Reasons Why" booth to demonstrate
credit unions' commitment to auto financing.
The credit union presence was noted. On the third day, Automotive News published
a full-page ad on the back cover of its convention daily from Chrysler Financial.
The ad showed a tired looking F&I dealer with his head resting on his hand
looking frustrated at his situation. What situation?-the tag line gave the answer:
"When your credit union's out of reach?" with the time of Tuesday
12:35pm (noon hour) prominently displayed.
When shown the ad a credit union attendee remarked, "Well if we are taking
flak, we must be over the target."
After homebuilding, the auto industry is America's largest business. Outstanding
new and used auto financing totals $550-$600 billion. Credit unions underwrote
almost 18% of all cars financed last December. Total credit union automobile
loans are $144.5 billion for over 12.6 million cars.
Until recently, automobile financing has been the single largest component of
the credit union loan portfolio. Today, real estate related financing is 44.2%
with autos a close second at 38.6% of all loans.
How credit unions originate these loans has undergone a dramatic change in the
last 15 years. The traditional method was one loan, one member at time. Except
for isolated instances, credit unions did not participate in loans originated
at the dealer-so called indirect lending programs. Credit unions might cooperate
with dealers on market promotions, but there was a long-standing tradition that
viewed dealers as the enemy of the consumer. Therefore the credit unions' role
was to inform and even protect the member from dealer excesses-in some cases
by refusing to underwrite a loan if the dealer didn't undo an unfair deal.
Estimates today suggest that over 80% of auto financing is arranged at the dealership
at the time of sale. Currently over half of credit unions participate in a range
of indirect financing relationships with dealers. Some credit unions set up
their own programs, some work in local CUSO efforts, others belong to national
CUSOs or use third-party consultants to develop this critical source of auto
Some credit union success is even more dramatic than credit union overall national
market share. This past May (2004) two credit unions ranked among the top 50
auto lenders in the entire country: Security Service FCU in San Antonio ranked
32nd place and Navy Federal Credit Union 44th. Citizens Equity First Credit
Union was in first place in Peoria County, Ill., with a 34% share of all autos
financed in May.
In many instances credit union success is due to their creating business relationships
with dealers. The goal of the credit union booth at NADA in Las Vegas was to
let dealers know that credit unions want their business and can be good business
partners-thereby generating an even greater market share.
Where is the Auto Industry Heading?
A major benefit of attending the conference was, in the words of one attendee,
"being immersed in the auto industry for four days." While auto lending
is important to the credit union, this was the first concentrated exposure to
dealers and all aspects of the auto world. So what were some of the key take-aways
about the industry?
1. The industry is expecting a record year with new car sales projected at almost
17 million vehicles. The attendance, the number of exhibitors, and lavish Super
Bowl parties all suggested that everyone was optimistic about the outlook for
2. Electronics and the Internet are being embedded in every aspect of the auto
buying process. From consumer auto buying sites, to industry data, to dealer
management system software, every aspect of the dealer process can now be automated.
One booth demonstrated how a buyer can provide specifications, such as a $300
per month payment, into a template and compare side-by-side the autos that will
fit the profile from the dealer inventory. What's new? The whole process is
projected on a plasma screen that lets the consumer see every variable that
can be changed, from interest rate to suggested retail price to the options
for accessories on any car displayed.
3. Competition and consolidation are continuing trends. The number of dealers
is in decline, but also the number of one-owner dealerships is being reduced
through the sale to ownership chains, both public (Auto Nation) and private
companies. Competition for financing is intense, with Dealer Track (an automated
platform founded by large bank finance companies) actively using the show to
sign up additional dealers to the 20,000+ already on board. E-Bay is soliciting
dealer inventories as well as individual car seller's postings.
Credit Unions Learn from Each Other
Several credit unions in attendance did not have indirect programs. Their goal
was to learn more about what one credit union called the "unexplored opportunity
that they had never seen before."
The credit unions at the show worked with four indirect lending programs, although
CUDL, which coordinated the booth, had the largest number of user-participants.
Credit unions exchanged ideas about their different programs, the use of data
for underwriting and market share tracking, ways to effectively dispose of repossessions
and even underwriting strategies such as how deep to "buy" paper of
lower loan quality.
But the most common topic was dealer relationship management strategies. One
credit union's employees mystery shop every dealer before approaching them for
indirect loans. Included in the credit union's program is adding the dealership
as a SEG so all employees can join the credit union. The loan manager said this
helped the dealer's employees know about the credit union and helped establish
direct relations with key dealer personnel.
The Cooperative Opportunity
But far and away the most frequently mentioned benefit was the cooperative approach
captured by the booth's slogan - Million Reasons Why." As one
credit union with over a billion dollars in assets remarked, there is no way
his credit union could have had any impact by itself.
The credit unions demonstrated the value of working together for mutual advantage.
Dealers could not only meet their current credit union partners, but also learn
about the extensive credit union presence in auto financing.
But cooperative strategy is much more than communicating credit union interest
in dealer business. A significant advantage of credit unions is their local
presence. Many of the competitors for dealer paper such as the auto manufacturers'
"captives" to national firms like Wells Fargo and Bank of America
often lack this same kind of local identity.
The NADA presence was a "breakout effort" for credit unions in the
auto marketplace. Building on this momentum will have repercussions far beyond
the 50 pioneers who were in Las Vegas. Uniting for a national credit union solution
for market share with the goal of participating in the manufacturer's financing
subsidies could really start the flak flying.