The Three Key Ratios You Should Track at the Dealership

In business, measuring the performance of our partners is a routine aspect of the relationship. Am I getting what I asked for? Is the collaboration strong? Is it worth the cost? And, how can I find out?

 
 

With over $70 billion in credit union loans at year-end, indirect lending is a business relationship that requires deep performance analysis. 

Using the example that follows, let's look at three key questions you should be able to answer regarding your indirect partners. A good start is to measure the sales volume that your indirect partners are making per month. This helps you understand the market leaders as well as the sales trends of your dealer partners.

On the surface, which one of these dealerships would likely bring the highest potential return to your credit union?

Partnerships
Dealer A
75 Cars/Month

Dealer B
160 Cars/Month

Dealer C
70 Cars/Month

Measuring dealership transactions is a good start, but it is not enough. Dealer B may win in this preliminary analysis, but let's find out more.   Since getting your foot in the door with an established lender may be more difficult, it’s important to also consider how many transactions Dealers A, B, and C are sending your way.

Taking a closer look now, which one of these dealerships seems to have the strongest credit union relationship?

Partnerships Transactions
Dealer A
75 Cars/Month
44

Dealer B
160 Cars/Month

3

Dealer C
70 Cars/Month

29

Now, Dealer A, comes out as the best indirect lending partner when we consider the number of applicants being referred to your credit union. But, there is more to consider about the pool of applicants we receive from dealerships. It's not only about quantity, it's about quality as well. You may get a high number of loan applications, but how many are actually approved?

In the chart below, which dealership comes across as the strongest partner in your indirect lending program?

Partnerships Transactions Approvals
Dealer A
75 Cars/Month
44 18

Dealer B
160 Cars/Month

3 1

Dealer C
70 Cars/Month

29 24

Approving 24 out of 29 applications is strong so Dealer C is certainly sending applicants that meet your standards. But, an added consideration will give a strong indication of the quality of your indirect lending relationship.

It's just as important to see if your credit union is ultimately winning the business coming to the dealerships. You may be approving a high number of loans, but how many are actually getting funded by you?

Here we can take a look at a more complete picture of indirect lending activity in a given month, and better determine the overall quality of our indirect lending relationships.

Partnerships Transactions Approvals Funded
Dealer A
75 Cars/Month
44 18 2

Dealer B
160 Cars/Month

3 1 1

Dealer C
70 Cars/Month

29 24 13

By looking at a broad picture of a month of indirect lending activity, we see that measuring volume is important, along with a look at the quality of loan applicants, and the volume of loans that are funded by your credit union.

In this example, Dealer C comes out as the overall best partner in indirect lending for your credit union despite being the smallest dealership amonth the three.

Partnerships Transactions Approvals Funded
Dealer A
75 Cars/Month
44 18 2

Dealer B
160 Cars/Month

3 1 1

Dealer C
70 Cars/Month

29 24 13

Taking the time to look at your indirect lending activity doesn't stop at just volume. A clearer picture of the performance in your indirect lending program improves your ability to develop and maintain solid dealer relationships.

For more help in gaining a clear picture of the auto lending market, join us for "Measuring and Managing a Profitable Auto Lending Program" on May 23 at 2 p.m. Eastern.

 

 

 

May 7, 2007


Comments

 
 
 
  • Descent article, even beyond that you should be tracking 30-60-90-180 day performance there after. Alot of these dealers will send the contracts your way while telling the customer they have the opportunity to refy 60-90 days out.
    Barry Kirby
     
     
     
  • Good, basic exercise. Taking the fundings a step further and dissecting the credit quality of the approvals would be telling about the dealership portfolio and the loan officer(s) decisioning tendencies. From a business development standpoint, going back to the dealer that didn''t fund the approvals - find out why and work with them to get more funded approvals (ask for the business - dealers expect it).
    Phil Maniaci