The following case study examines the keys to developing and maintaining a successful credit union-auto dealer partnership in today’s automotive lending landscape. By looking at their partnership from their separate perspectives, the case study reveals how the credit union and the dealer have forged a vital relationship that has resulted in continued growth for each organization, and sheds valuable insight to the challenges, the solutions and the benefits of their partnership.
THE CHALLENGE FOR CREDIT UNION OF AMERICA:
Increase loan volume and grow membership.
Credit Union of America didn’t have a true indirect lending program in place and their relationship with area dealers was typically adversarial, which hindered new loan acquisitions. As a result, the credit union was losing members at the point-of-purchase, and its auto loan portfolio was shrinking. Moreover, what auto loans the credit union did obtain were mainly refinanced loans that had originally been made at dealerships through other financers. The credit union’s existing members were dissatisfied with the process of getting auto loans from the credit union (which entailed multiple trips back and forth between the dealer and the credit union.) Additionally, the credit union wanted to improve its membership growth rate through the indirect channel.
Credit Union of America recognized that it needed to make substantial changes to its current auto lending process, and that it was necessary to adopt/incorporate a new auto lending system and a better way of working with local dealers in order to capture more member loan opportunities, while providing the same convenience that major lenders offered their members.
Implement CUDL’s indirect lending program, while reaching out to local dealerships, including Scholfield Honda.
After looking into a number of solutions that were available to financial institutions, Credit Union of America chose CUDL for their indirect lending program. The credit union initiated CUDL’s indirect lending solution in March 2005 to address specific concerns:
- Provide greater convenience and a simplified loan process to their members
- Grow their auto loan portfolio
- Grow membership
- Leverage CUDL platform to help build relationships with local dealers
Further, CUDL was the only indirect lending provider that had local credit union and dealer reps that could help the credit union facilitate relationships with dealers.
“We were losing our members at the point of sale, at the dealership,” recalls Gary Hull, Lending Manager of Credit Union of America. “With no way to refer our members back to us for financing, we were losing those sales. Our new car sales were really declining. At the same time, our members were asking about indirect because they wanted to be able to sign all the paperwork at the dealerships without all that driving back and forth between the credit union offices and the dealerships.”
“We also wanted to change the nature of our relationship with the dealer,” adds Gary. “We wanted to make sure that it involved more than just ‘lip service’ – you know, the courtesy calls where you pick up everyone’s card just to show you were there. We took the time and effort to develop personal relationships with everyone at Scholfield Honda and it changed everything.”
The Personal Touch
After implementing CUDL, Credit Union of America’s staff members took the time to develop personal relationships with the Scholfield staff by making a point of visiting the dealership to speak with everyone – not just the front office people – and not just about business. Far from interfering with their business it made everyone realize they each had a stake in the other company’s success.
A Big Turnaround.
Credit Union of America was able to turn its adversarial relationship with dealerships, including Scholfield Honda, into one of partnerships, and its membership growth has mirrored its growth in lending opportunities. Since implementing CUDL’s indirect lending program and making partnerships with local dealers a priority, the credit union has experienced exceptional growth in member car loans, as 32% of membership now has their loans with the credit union.
Since partnering with CUDL in 2005, and developing their relationship with Scholfield Honda and other local dealerships, Credit Union of America has experienced dramatic growth in auto lending activity. As a result, the credit union has experienced a 42% growth in indirect loans over the last 8 years, processing 6,552 auto loans totaling $101,516,688 million in 2012.
Scholfield Honda now steers most of its credit union buyers to Credit Union of America for financing; in fact, in 2011, 91% of loans that Scholfield sent through the CUDL lending platform went to Credit Union of America.
Further evidence of their success, the credit union now has partnerships with 73 local dealers and has grown its membership from approximately 25,000 members to more than 49,000 members in 2012.
And because Credit Union of America staff members actively maintain personal relationships with the staff at Scholfield Honda, the credit union even makes numerous personal loans to the employees at Scholfield.
“There's a huge distinction between making a courtesy call and coming up because you’re friends with everybody at the store and you just want to say hi,” according to Ron Godwin, Scholfield Honda’s Finance Manager. “There's a reason why Gary has all of our car loans, a reason why he has my mortgage, a reason why probably 75% of our employees at Scholfield Honda have their personal loans with Credit Union of America. It’s because Credit Union of America here in Wichita cares about Scholfield Honda's personal success.”
THE CHALLENGE FOR SCHOLFIELD HONDA:
Increase sales volume and reduce write-offs.
For Scholfield Honda the primary challenge was its lack of competitive financing options and relationships with lenders. Buyers were financing their auto loans at dealerships when purchasing vehicles at night or on weekends, then quickly refinancing them for lower rates elsewhere. Since credit unions were grabbing at least 30% of the refinanced loans, the relationship between Scholfield and area credit unions was an ongoing struggle.
Notes Scholfield Finance Manager Ron Godwin, “It became clear that not partnering with credit unions, and Credit Union of America in particular, was costing us $5,000-10,000 in gross profit every month.”
Accept Credit Union of America’s invitation to transform the nature of their relationship and begin by joining CUDL’s indirect lending program.
Partnering with Credit Union of America in this way would enable Scholfield to:
- Realize a substantial growth in vehicle sales
- Achieve a significant reduction in delinquency of loans and reduce write-offs
- Ability to connect and build relationships with Credit Union of America’s members.
- Boost repeat business as members increasingly return for additional purchases due to the convenience of the pre-approval process
- Receive more pre-approved buyers from Credit Union of America than any other lender in the area
“I guess Gary and I just got tired of arguing with each other every Monday morning,” says Ron. “We knew we were both taking something from each other just by doing our jobs, but with CUDL’s indirect lending program we realized that we both could win.
For all of us to succeed, the dealer has to do well, the credit union has to do well, and the member has to do well. It must be a win all around, and through CUDL, we realized we could accomplish that. Everybody wins.”
More Sales, Less Write-offs
Since joining Credit Union of America on CUDL’s indirect lending platform in 2005, Scholfield Honda has experienced a significant growth in sales.
Schofield Honda sold 2,446 new and used cars and trucks in 2012. Credit Union of America purchased 30.9% of all the dealership’s finance deals in 2012, amounting to about $10.2 million in loan volume. Today, at least 40% of all the dealership’s loans are processed through CUDL.
Just as important, as a result of Credit Union of America’s pre-approved member-buyers, Scholfield has experienced both a reduction in delinquencies and a significant decrease in write-offs.
Scholfield has also realized that a large percentage of vehicle buyers return for additional purchases because of the convenience of the pre-approval process. And it doesn’t hurt that Credit Union of America now sends more pre-approved buyers to Scholfield Honda than any other lender in the area.
“Fact is, you're going to send your member to somebody you trust,” notes Gary Hull. “Nobody's known here at the credit union like Ron, and that's what makes our staff want to send our members to him. It’s that simple.
BENEFITS THAT CREDIT UNION OF AMERICA AND SCHOLFIELD HONDA SHARE:
- The adversarial relationship between Credit Union of America and Scholfield Honda has become a business relationship built on mutual respect and benefit
- Recognizing that each organization’s success is tied to the other’s, they each regularly act “above and beyond” in order to make sure that the other is successful
- Both credit union and dealership get a great deal of personal satisfaction from the fact that their relationship ensures that each participant in every deal – the credit union, the dealer and the member – is a winner
- Bottom line: Both Credit Union of America and Scholfield Honda are growing at a greater rate than they did before they transformed their relationship through indirect lending
According to Ron, “Our lenders at Credit Union of America know that they are a big part of our continuing growth, and that we need them to hit our yearly objective. They also understand that we play a big part in helping them reach their objectives. That’s why the marriage of our dealership and the credit union is vital for everyone’s continued success.”
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