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Friends
indeed
Once adversaries, dealerships and
credit unions work together to boost loan share
Donna Harris
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Automotive News / November 13, 2006 - 1:00 am
Less than a decade ago, auto dealerships and credit
unions saw each other as rivals for vehicle lending
business. Few credit unions engaged in indirect lending
- offering loans and leases through dealerships.
Today, though, dealerships and credit unions are teaming
up to grab a bigger share of the auto loan market.
Dealerships arrange 89 percent of all auto financing
transactions, says Credit Union Acceptance Corp. The
Houston company processes vehicle loans for 65 credit
unions in seven states.
Chuck Smith, senior vice president of lending of the San
Antonio Federal Credit Union, says, "The credit unions
that are growing the most are doing indirect financing."
Loans through dealerships accounted for 39 percent of
outstanding credit union vehicle loans in the first half
of 2006, says Credit Union Direct Corp., which works
with credit unions and dealerships.
By contrast, the comparable figure for such indirect
lending in the first half of 2003 was 10 percent,
according to Callahan & Associates Inc., a Washington
research firm.
A.J. Wagner, president of Ford Motor Credit Co. North
America, says of credit unions: "We respect them and
take them seriously as competitors."
Lithia Motors Inc. CEO Sid DeBoer agrees. His public
dealership group began in the Pacific Northwest, where
credit unions are especially strong. The Medford, Ore.,
company operates 100 dealerships. |
Why do
you use credit unions?
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Sid DeBoer, CEO,
Lithia Motors Inc., Medford, Ore.:
"They do offer longer finance terms
at better rates than most of our
other sources - this has driven us
to use them. They are not the enemy.
They do help us sell more cars and
finance more people."
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Let's be friends
Credit unions "are not the enemy," DeBoer told
Automotive News. "They do help us sell more cars and
finance more people."
Credit unions tend to offer longer finance terms at low
rates than other vehicle lenders, DeBoer says. Lithia
dealerships finance 15 percent of their new-vehicle
loans and leases with credit unions, he adds.
In past years, dealers routinely accused credit unions
of stealing business through aggressive campaigns to
refinance their members' vehicle loans.
Even if credit unions offered indirect loans through
dealerships, they generally refused to finance
aftermarket products such as extended service plans.
That was in "the old days," says Joe Ehlert, general
manager of Toyota of Orange in Orange, Calif. Today, he
says: "Credit unions have become like banks. You send in
a contract, and they send you a check."
Ehlert says his dealership sends about 15 percent of its
finance contracts to credit unions.
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Why do
you use credit unions?
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Charlie Robinson,
Vice President, F&I, Asbury
Automotive Group, New York:
"We do a small percentage of our
business with credit unions. Most
customers go directly to their
credit unions for a loan. We are
examining a contract with an agent
representing 10 to 11 credit
unions."
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Better fees
In the past, dealerships made much more money sending
loan or lease contracts to banks and finance companies
rather than credit unions. The credit unions would pay
dealerships a meager fee - often as low as $25 - to
arrange a loan.
But many credit unions now pay higher flat fees -
typically 1 percent of the loan value. That is, a
dealership earns $200 for sending a credit union a
$20,000 loan contract.
And at least one of every five credit unions allows
dealerships to mark up the wholesale interest rate on
vehicle loans, industry analysts estimate.
The San Antonio Federal Credit Union authorizes
dealerships to mark up interest rates by as much as 2
percentage points on loans of less than 84 months. It
caps rate markups at 1 percentage point for longer
loans.
If a dealership charges a retail customer the wholesale
rate, it gets 1 percent of the loan amount.
Meeting dealers' needs
Credit unions are doing better at aligning their
indirect lending with dealerships' financing needs, says
Chris Barry, vice president of retail lending at Sonic
Automotive Inc.
The Charlotte, N.C., company is the nation's third
largest dealership group. Sonic dealerships finance
nearly 6 percent of their sales through credit unions.
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Why do
you use credit unions?
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Joe Ehlert General
Manager Toyota of Orange Orange,
Calif.:
"Credit unions have become like
banks. You send in a contract, and
they send you a check."
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By contrast, another large public dealership chain,
Asbury Automotive Group, of New York, sends only about 2
percent of its finance contract to credit unions.
"We tend to see credit unions in rural areas," says
Charlie Robinson, the company's vice president of
finance and insurance.
"Most of our stores are in metropolitan areas."
But Robinson says his company is considering an
affiliation with Credit Union Acceptance Corp. that
could increase Asbury's credit union finance volume.
Strength in numbers
Joe Scimone, president of Chase Auto Finance, says
credit unions have become "tough competitors" to banks
such as his. Although individual credit unions have
limited influence, he says, they are formidable when
they work together.
Over the past five years, several large credit unions
have formed organizations that process indirect loans
for groups of smaller credit unions.
Such so-called service organizations have been a major
force in the growth of indirect auto lending.
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Some of the organizations automate credit transactions
and offer electronic contracting. Such innovations
appeal to dealers because the dealers get their money
more quickly.
Smith of the San Antonio Federal Credit Union says the
lender offers automated credit applications and
decisions. It also provides e-contracting to 20 other
credit unions, he says.
The largest service organization owned by a credit union
is Credit Union Direct Corp., of Rancho Cucamonga,
Calif. The company serves nearly 600 credit unions and
8,000 dealerships.
It operates a nationwide program that allows credit
union members to get financing at dealerships through an
automated system of applications and decisions. Last
year, the program processed $15 billion in indirect
vehicle loans.
Credit Union Direct had the first credit union booth at
a National Automobile Dealers Association convention, in
2004.
"We give dealers additional lending sources they didn't
have before," says Jerry Neemann, COO of Credit Union
Direct's auto lending program.
"Credit unions are becoming a competitive force."
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