CU’s share of auto lending increasing — How to compete in F&I

“I have my loan already handled with my credit union.” There is not an F&I Manager on the planet that enjoys hearing that from a customer.

Credit unions have been the surprising life preserver for millions of buyers who no longer have favorable captive financing deals available.

How do we know this? Recent data over the last couple of months has shown that the credit union share of both new and used auto loans has increased to its highest first quarter percentage in 5 years.

To unpack it further, banks were flat with little growth and captives had a YOY drop of almost 25%. Ouch. But again, not surprising with the sweet OEM deals pulled long ago.

If we look even closer at the distribution of loans, used car lending accounted for a healthy 26% and new car loans rested at 16%. Historically credit unions have always leaned in heavier on used autos than new and these numbers show it clearly. Dealerships have never been able to be very competitive on used autos and credit unions know it.

Of course, it helps when there are so few new cars to buy. Used becomes most people’s only option right now.

Credit Unions still formidable

While the buyer who comes in with their credit union draft check is the bane of the F&I office, it’s never a lost cause. F&I may not have captive incentives anymore but that doesn’t mean there are no tried-and-true strategies that can help compete with credit unions.

Though treated as a cash deal, there are ways to steer the buyer into one of your financing options. After all, you may have a chance to grab that business before they actually have a chance to finalize their CU paperwork.

It’s important to keep in mind that even your local credit unions have had to raise their rates as well in the last few months. It may take them a little longer based on their business model as a not-for-profit, but they are not immune to rate hikes.

Tips to recover some of those finance opportunities

• Try A Preferred Rate – Consider either coming up with a special rate for ‘cash’ buyers (which is in effect what credit union members are when they have a draft in hand). If the FICO allows some flexibility here and with your stable of banks, you can quickly look up the CU rate or if you are bold enough, ask the customer if they would share their approved rate with you so you can see if you can compete.

Set a rate special for later model years or for first time buyers. Credit unions are financing more near-prime buyers which puts pressure on F&I departments to find rates that can stand up to that pressure and it usually comes in the form of not holding as much rate. Reserve may not be as high but if you grab the loan from the local CU, it’s a victory and helps open the door for aftermarket products to raise the PVR.

• Let the Buyer Know You Have Options – If your dealership has access to multiple financing sources, then there are multiple ways to compete with lower CU rates. Beyond the captives, be sure you are adding as many varied finance sources as you can, especially if your market has a high concentration of credit unions that are aggressively advertising used auto loan ‘sales’ as many are known to do.
• Reach Out for Good Indirect Relationships– If you don’t already have CU relationships in place, reach out to local credit unions to see what their rules are and what the margin would be for your store. They may not be huge money makers for reserve, but it opens the door for an easier sale for VSC, GAP, etc. They will buy it from you rather than the CU. That’s revenue you always want.

Don’t get too down on those CU buyers. You may have to come down in rate a bit or offer other finance channels beyond just the one or two you’re used to, but it will be worth it to grab some of those deals back. Credit unions are clearly taking advantage of a changing market and dealerships can easily be ready to counter it.