New White Paper Explores The Dealer Value Proposition, Reveals Opportunities to Increase Relevance in Credit Union Indirect Auto Lending
The next few years will bring notable changes to the auto finance industry. First, shrinking new car sales will make the auto retail market even more competitive, resulting in front-end grosses decreasing further. Dealers will intially react by implementing cost controls and reducing expenses. Then, they’ll reexamine other parts of their business to find new sources of income. Dealers will also place greater emphasis on used-cars (including certified-used), service, and F&I, as important profit drivers for their businesses. To that end, some progressive-minded dealers will eliminate F&I-related costs – mostly personnel – by automating much of the F&I manager function with digital technology. This will pressure lenders to offer dealers automated decisioning, electronic paperwork, and other digital-related tools.
Should interest rates advance higher, monthly payments will go higher as well, thus reducing vehicle affordability. While this may slow the advance of vehicle transaction prices (as customers switch to lower priced vehicles as an offset to higher rates), it may also produce an advantage for credit unions.
Credit unions primarily succeed because of their focus on providing indirect dealers with competitive compensation flats, and lower lending rates for borrowers, the latter proving to be the most important and tangible competitive attribute of credit union indirect auto lending. The average credit union rate is over 100 basis points less than traditional auto lenders (a sizable difference especially given longer term loans and record high vehicles prices). This lower rate reduces the interest paid, and thus reduces a customer’s monthly payment, while also providing dealers more room for gross profit and sales of ancillary F&I products.
Credit unions are currently competitive with other auto lenders, but industry trends will force change. In our new white paper, The Dealer Value Proposition, we provide seven simple opportunities for credit unions to both enhance existing value, and create new value for their indirect dealer partners. We base these opportunities on our understanding of the current auto retail market, predictions for the near-term future, and collaborative research efforts with CU Direct. As an added bonus, we include valuable ideas and best practices from the various credit unions we’ve talked to and researched. Discover critical insight credit unions need to increase their relevance with dealers by downloading the complimentary white paper.
Credit unions must embrace change to provide continued value to dealers that are facing their own market pressures. In any car sales market, credit unions will always face competitive pressure from other lenders seeking to maximize their auto loan assets. While indirect lending is currently profitable and competitive for the credit union industry, credit unions must make strategic investments in technology, revamped processes, and other resources to ensure that these programs remain competitive, profitable, and sustainable in the future.
We look forward to answering any questions you may have on the paper or other auto finance topics — please feel free to contact me directly.