By John Flynn, Open Lending President & CEO
Auto loans were slightly down last year from recent years, but they’re still near all-time highs. As the market has flattened, and may soon retract, credit unions can continue to drive auto loan originations through their dealer partners. Based on statistics in a recent Raddon report, 65% of purchasers originated their loans at the dealership. Of those, banks won 31% of the business, captive finance companies garnered 24%, and credit unions captured 10%.
When it comes to direct originations, credit unions have a slight lead on banks, gaining 13% of the direct auto loans versus banks’ 12%. So, how can bank and credit union lenders win more of the auto lending pie?
Dealers don’t always look kindly on their financing partners. They understand that financing is part of their business and offer it as a convenience to their customers. Additionally, it generates some income for the sales team via sales commissions. However, understanding what is important to the dealer is the best way to grow this indirect business for your credit union or community bank.
First and foremost, serve as a partner with the dealership. Loan decisions must be made quickly. Very often dealerships will lead with the fastest returns, not necessarily the ones with the best interest of the purchaser in mind. When the relationship is a two-way street of information, everyone wins.
Second, ensure your dealer-partners are aware of your credit decision criteria. The customer is in front of them, and they’ll be dealing with negative ramifications initially. If they know what your criteria is, they can better inform their customer. Additionally, when the potential borrower has questions, the salesperson has answers - especially if the situation for the customer is changing.
Third, make your institution available for your dealer-partners. They may need to pick up the phone and call. The shorter they wait, the better opportunity you have to win the loan. Getting back in touch with them quickly helps move the process along - improving customer experience and freeing up the salesperson, who works on commission, faster to make more sales.
Fourth, returning a loan approval higher than just the purchase price of the vehicle gives the dealer and salesperson to grow their margins as well, allowing them to sell extended warranties, repair plans and other add-ons to include in the loan. These additional products provide significant income for dealerships.
We’re all business people trying our best to serve our customers while earning an honest living, and according to Auto Finance News, these four items are critical for lenders’ dealer partners.
Treating these dealerships as partners, listening to their needs and structuring mutually beneficial solutions can not only grow your auto loan portfolio, it can also help turn these dealer partners into business customers as they leverage loan products to maintain their inventories and grow their businesses. Community banks and credit unions have long held reputations for being community partners, and dealerships are one of many fruitful collaborations for the communities you serve.