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.”
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