Pumping Up Auto Loan Volume

CUs find innovative ways to rebuild auto loan portfolios that lost $15 billion since 2006.

September 30, 2011
Pumping Up Auto Loan Volume


  • The recession sent new-car lending into a tailspin.
  • Prescreening has become an effective way to target members, and microsites make it easier for loan shoppers to discover your CU.
  • Board focus:   Expect auto lending to show gradual, not dramatic, improvement in the coming year. Used-car lending will remain a bright spot.


Auto loans have long been the bread and butter of credit union lending. But these days the bread is a tad drier and the butter a bit scarcer.

New-car lending hit the skids in 2008 as the recession took hold and consumers grew cautious. Consumers who needed to replace cars opted for used instead of new to keep their debt under control.

In 2000, auto loans accounted for 40% of total credit union loans. That dropped to 29% by June 2011, according to CUNA’s economics and statistics department. Credit unions’ total auto loans outstanding fell from nearly $180 billion in 2006 to $165 billion as of mid-year 2011 (“What’s around the bend?” p. 27).

The sharp drop in new-car lending was partially offset by modest growth in used-car lending. While credit unions’ new-car loans outstanding dropped from about $90 billion in 2006 to about $60 billion in mid-year 2011, used-car loans increased from $90 billion to about $105 billion during this time.

During the past five years, credit union marketers have adopted innovative strategies to compete in this down market. New technologies have helped credit unions target members with the right loan deals and make it easier for members to apply for loans.

Credit unions also are coming up with ways to make loans to members who are struggling financially. Some institutions create new “doors” through which car-buying members can learn about credit union loans.

Prescreens within reach

Prescreening is an effective way to target members who qualify for auto loans. But many credit unions can’t afford to subscribe to credit bureau prescreening services.

The answer to this is cooperation, says Monika Perkins, director of credit union solutions for CUDL, which is part of CU Direct Corp., a credit union service organization.

“By banding credit unions together we get discounted pricing that enables them to do prescreen campaigns,” she explains. The program began in May 2011 and by midsummer had signed up about a dozen credit unions that had run prescreen batches or planned to do so.

CUDL places consumers into different credit segments, reflecting such factors as credit score, delinquency history, number of trades, and so on. The credit union decides which segments to subscribe to.

To get a prescreened set of borrowers, the credit union submits a file of members of its choosing to CUDL, which partners with Experian to run the prescreen. CUDL sends the credit union a list of members who qualify for that segment.

The prescreen inquiries sent to Experian are “soft” and don’t affect members’ credit scores, as “hard” credit report inquiries do, Perkins says. “Credit unions are using this tool both for standard prescreens and to find members who have opened auto loans with other lenders. So it can be used to target recaptures, too.”

Credit unions can choose to have CUDL upload the prescreen data into the CUDL system, enabling dealers to pull up the same preapproval decision and financing information the member received.

“With that automatic lookup,” Perkins explains, “we’re trying to keep that loan with the lender who made the effort to do the preapproval.”

Prescreening is just one component of CUDL’s preapproval solutions. Another is SMART Approval, an appli-cation that enables members to apply for and obtain immediate preapprovals online.

The SMART Approval feature also is on CUDL’s iPhone AutoSMART app so members can apply for loans, get approvals, research autos, check dealer inventory, and more on their iPhones.

To maximize the benefit of prescreening, Perkins says credit unions must follow up with solid offers and strong marketing pieces. Also, “give members a clear message about what to do next with the preapproval,” she advises, “such as clicking on a link to see dealers in the area. The dealers love that, too. It goes a long way in building dealer relationships.”

Next: Remote control

 Remote control

If your car dies and your credit is in shambles, you’re stuck. You can’t get a loan to buy another car, but you need one to get to work. Horizons North Credit Union, Northglenn, Colo., is helping members in that predicament.

“We give them a loan option while minimizing the risks to the credit union,” says Krista Burnell, vice president of organizational development for the
$67 million asset credit union.

The solution Horizons North adopted is PassTime’s remote tracking and starter-interrupt technology. A chip installed in the borrower’s vehicle tracks its location. If the borrower fails to make payments, the credit union can disable the car’s start-up circuitry from afar. As of mid-2011, Horizons North had made 151 “chip loans.” Member feedback has been positive.

“They’re excited to have this opportunity to rebuild their credit,” Burnell says. “When they go to other lenders, they can’t get a loan.”

Borrowers pay 13% to 15% interest on a maximum loan of $13,000 with terms ranging from 36 to 60 months. The $485 cost of the chip is rolled into the loan. Defaults have been minimal.

“We’ve been highly satisfied with the program,” Burnell says. “It’s bringing in loans at a time when credit un-ions are struggling to do that. And, most important, it’s meeting members’ needs.”

Easy entry

One key to auto lending success is to make it easy for loan shoppers to discover your credit union. That’s the purpose of drivejdcu.com, the microsite of $910 million asset Jeanne D’Arc Credit Union, Lowell, Mass.

If you go to Google and type, for example, “car loans Lowell, Mass.,” the site appears in the results.

“We’ll be at or near the top of the list,” says Michelle Silveira, senior vice president and chief marketing officer. “As more people click on it, our site organically moves up. We also pay for prime placement through search engine optimization.”

In the first year-and-a-half, the microsite turned up in searchers’ results more than 132,000 times. Some 3,000 searchers clicked through to visit the site, where they find car-buying information, a calculator, and a loan appli-cation.

Silveira can’t say how many loan applications the microsite has generated because when a borrower transmits an online application, there’s no indication of whether it’s coming from the microsite or the credit union’s site.

Initially, the credit union promoted the microsite through billboards and other advertising. But it has done no major promotions in 2011, instead using simple marketing strategies, such as posting a banner on the credit union site.

The microsite “is another door into our credit union,” Silveira says. “People are finding us and applying for loans without us spending big dollars to drive them here.”

Next: Winning and loans

Winning fans and loans

In 2009, Alliance Credit Union sought to create awareness about its Facebook presence and build its auto loan portfolio. “We wanted to do something interactive that gave us a reason to be on Facebook,” says Heather Whee-land, marketing specialist at the $350 million asset credit union in San Jose, Calif.

Toward that end, Alliance sponsored an Ugly Car Contest. Twenty members submitted photos of their entries via Facebook or other channels.

Members also visited Facebook to vote for the winner, who received $5,000. The contest’s popularity inspired a repeat in 2010, generating 45 entries.

Nearly 700 members became Alliance Facebook fans during the 2009 contest, climbing to 1,121 members with the 2010 contest.

Auto loans also took off. Alliance made 334 car loans during the 2009 contest, up 46% from the same period a year earlier.

Although Cash for Clunkers was in effect during the contest, it didn’t figure into results as only three loans were for new cars, Wheeland says. The 2010 contest brought in 356 loans.

Each contest cost about $8,000 for prize money and advertising, such as direct mailers and inserts in game scorecards for the San Jose Giants, a local baseball team Alliance sponsors.

For the fall 2011 contest, eliminating direct mailers will lower costs. “We feel confident we’ll still have a big impact,” Wheeland says. “We hope to get even better results while spending less.”

 What's around the bend?

In the next year or so, auto lending will show “gradual improvement, but nothing dramatic,” predicts Mike Schenk, vice president of CUNA’s economics and statistics department.

He says new-car sales should hit about 12.6 million this year, up from a low of 10.4 million in 2009 but still markedly lower than the 17 million new vehicles sold in 2000.

Used-car lending is where the action is. Credit unions’ new-car loans outstanding totaled $60.4 billion as of June 2011, roughly the same as in 2000.

By comparison, credit unions’ used-auto loans outstanding totaled $104.8 billion in June 2011, up from $60.9 billion in 2000.

Schenk foresees roughly 4% growth in used-auto lending in 2011. “Pricing wise, credit unions are head and shoulders above others in the market.”

According to Informa Research Services, credit unions’ average rate for a five-year new-car loan was 3.82% as of Aug. 1, 2011, compared with 5.24% at banks. Used-auto loan rates were 3.95% and 5.48%, respectively, for a four-year loan.

“You don’t want to live or die on pricing,” Schenk advises. “Pricing is just one part of it. Credit unions have always done a great job on education, making sure members are informed about the car-buying process.

“That’s one of the differentiating factors in the marketplace,” he continues. “Consumers value that difference, and that should be something credit unions continue to accentuate.”