Amplify Federal Credit Union ($553M; Austin, TX) is continuing to focus on its dealer relationship strategies in 2009 as it emphasizes the direct channel as a way to combat stagnant auto loan balances. This two-pronged strategy has been a key driver of auto loan growth through the first quarter of 2009.
Managing and Tracking Dealer Relationships
Consistent tracking of dealership performance and open lines of communication are crucial to Amplify’s dealer relationship management strategy. “When it comes to dealer relationships, most of the work is done up front when the relationship is formed,” notes Pierre Cardenas, vice president of retail at Amplify. “Before the relationship even begins, you need to conduct due diligence to determine the strength of the dealership and its reputation. As far as maintaining that relationship on an ongoing basis, we constantly monitor each dealer’s portfolio, their delinquency and charge-off rates, and the funding ratio is very important as well.”
“You need to be on top of the dealers where you find any issues in their portfolio tracking,” notes Cardenas. “You have to get on the phone with that dealer to find out what happened, and you need to manage the back-end as well to make sure their processes are cleanly in place to fulfill the commitment on the loans that are closed.”
While monthly tracking is an important process, Cardenas notes that frequent conversations may be more important. To keep lines of communication open with the more than 70 auto dealers, Amplify’s indirect lending manager provides a dedicated point of contact. “Our dealer representative goes out and meets with the dealers constantly. With everything happening in the auto industry right now, the frequency of those visits has increased,” says Cardenas. “It is this communication that gives us an idea of what’s really happening at these dealerships. We should be aware of any problems they’re facing, how their monthly sales are shaping up, and anything else that is affecting those dealers. The conversations are our leading indicator, the monthly numbers should simply confirm what we already know.”
As dealerships continue to struggle, Amplify has adjusted its relationship strategies accordingly. “The main change has been in the frequency of our contact,” says Cardenas. “Whereas before you could maybe go for a month between each relationship contact, now we are on a weekly basis. Additionally, we are tracking potential dealership closings very closely. There is one dealer we work with that may be closing down soon and we have face-to-face meetings with them regularly to determine the direction they will be moving in in the future, how we’re going to manage that new relationship, and what kind of commitment, if any, they’re receiving from the manufacturer.”
Re-focusing on Direct Lending Channels
Amplify knew dealer relationships alone could not drive the kind of business the credit union targeted. So to complement its indirect strategies, the credit union put direct lending strategies into place. “I want to make sure we aren’t simply relying on our indirect volume, we can’t stop developing our internal channels as well,” says Cardenas. “Getting indirect loans is great, but they don’t all help the credit union grow and better serve its members. If you have an individual with an indirect loan and $25 in a checking account, we’re probably not their primary financial institution, so if we want to focus on sustainable organic growth plans for the future, we need to develop our internal channels. If we didn’t have indirect lending, what would we be doing right now to drive additional lending?”
The first step for Amplify to drive this direct business was a focus on outbound calling. “Members just aren’t walking in the way they used to,” notes Cardenas, “and so outbound calling has been crucial. Our refinance strategy was a strong campaign because we continually found that when we were able to refinance a loan and bring it over to the credit union, lo and behold, we pulled the checking account over as well.”
Amplify first approached members that had previously been approved for an auto loan that the credit union never financed. Outbound calling representatives contacted these members with a refinancing offer. “Our staff was given parameters to work with,” says Cardenas. “Depending on credit score, loan amount, and other factors, our reps could offer loan terms within a certain range. They would talk with the member to get a better understanding of their situation and try to find a way to help that member into a loan with a lower interest rate.”
This strategy has had a two-fold impact on the credit union. Amplify is not only seeing an increase in auto loan balances but also in deposit balances and membership. Membership grew at 6.97% as the average share balance grew 10.31%, both well above industry averages. Loan quality was not an issue with these refinanced loans, as the members had previously met the credit union’s qualifications the first time the loan was approved. Overall, the key to Amplify’s strategy is to make the process as easy as possible for the member. “We should be going to them offering help, not the other way around,” says Cardenas. “When we’re asking for your business, we should be doing the work. The members shouldn’t have to lift a finger.”
Staying On Top of Early Indicators
“It’s all about relationships,” says Cardenas. “Whether you’re managing your relationships with auto dealers, or trying to deepen relationships with your members, the relationships are what drive people to the credit union and keep them coming back. The service levels are critical no matter who you’re dealing with. Our members expect great service from us, dealerships expect great service from us, and so we expect our dealerships to give our members the same service in return.
Looking ahead, Amplify plans to maintain this two-pronged strategy, but Cardenas is quick to note the need for flexibility in the current unsettled environment. “We’re in uncharted territory now, and we try to be sensitive to that. Putting early indicators in place is key, and so are open lines of communication. Being aware of the potential problems before they occur helps the credit union stay in front of those problems, rather than simply reacting to them.