Lessons Learned  In Auto Lending

With auto sales stagnant, loan competition is fierce.

November 14, 2011

My credit union's loan portfolio recently plummeted. It was no surprise, because lately the local auto dealership has been as empty as a politician’s promise.

With sales stagnant, competition is fierce. The auto loan business that does exist has been aggressively sought by larger institutions.

Our credit union faced a quandary: Should we simply compete on price, or attempt some novel marketing? We decided to do both—aggressively narrowing our margins while simultaneously trying several “creative” campaigns.

We borrowed our first brilliant scheme from Google and Space Coast Credit Union, Melbourne, Fla. (Note: I never did thank them for the idea. Thanks, guys.) Based on the principle of “rates walk, while cash talks,” we combined lowered rates with a $200 rebate for each auto loan refinance—payable 90 days after booking.

At first, deals flowed in faster than beer at a college fraternity party. Then competitors upped the ante to $250—making us look like cheapskates.

Lesson learned: When you rip off somebody’s grand idea, don’t get irritated when somebody else copies you.

We also tried giving away free gas cards, a perennial favorite of many credit unions. As the price of gas soared, however, their value diminished. Rather than being a break on fuel costs, it soon became a down payment on the member’s next trip to town. Rather than a “wow” it became a “hmph!”

Lesson learned: Don’t let your reward become a constant reminder of pain.

Matching several larger institutions, we also introduced a green car loan offering a very low rate for autos exceeding a certain miles-per-gallon rate. This brought in some business, but it was awkward to implement.

One couple, for example, came in asking for two loans: for the husband, a new Prius, and for the wife, a Ford F250 truck. The big question from the wife: “Why does my husband get a better rate?”

Lesson learned: Green loans aren’t always green.

We had high hopes for the 10,000 or so pieces of a direct mail effort developed via a well-known credit union industry campaign. In spite of many hours spent working out the details, our success rate was a dismal 0.1%—matching my own personal 11th-grade success rate when attempting to date members of the cheerleading squad.

Lesson learned: Begging isn’t your most efficient, nor effective, way to attract attention.

Next, our indirect lending team promised special care, attention, and pricing to local auto dealers. Great idea, until the dealers demanded special care, attention, and pricing. Unfortunately, they took our spin at face value. And while we often can turn loans around on a dime, we were ill-prepared to deal with the Sunday, 7 p.m., request from a member with a 620 credit score and a 125% loan-to-value ratio.

Lesson learned: Promises, like pie crusts, are made to be broken.

Focusing on younger members was problematic, as well. Apparently, our advertisements on YouTube and other social networking sites worked, but we couldn’t decipher the results.

Here’s one sample response: “OMG! I nEd 2 git a loan frm U!” This made us believe that somehow our e-mail system had been hacked, and the thief had absconded with most of our vowels.

Lesson learned: Gen Yers aren’t illiterate. They’re “ill litter 8.”

In the end, we held our own—apparently uncommon among many colleague credit unions that recently have had dismal auto loan marketing performance. Some of them even had better ideas than O Bee Credit Union.

I consider us to be “smart lucky”: Smart, that we tried something…anything. Lucky, that we didn’t lose our shirts.

JAMES COLLINS is president/CEO at O Bee CU, Tumwater, Wash. Contact him at 360-943-0740.