Credit Union Auto Lending Rises - 3 Ways to Compete in F&I

Every F&I manager dreads hearing this from a customer… “I have my loan already handled with my credit union.” Over the last 10+ years though, credit unions had plenty of competition from captive finance arms of OEM’s. 0% financing for up to 72 months seemed like the norm and plenty of us got in on that deal. Why not, right? Free money and low payments. 

Enter the chip shortage, inventory disruption, and….the Fed hiking rates to stem the tide of inflation. For this ‘perfect storm’, credit unions have been the surprising life preserver for millions of buyers who no longer have the sweet deals from the manufacturers anymore. 

How do we know this? New data released from Experian last month 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.

Why All This Talk About Credit Unions?

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. 

Yes, it’s technically a cash deal but there are ways to steer the buyer into one of your financing options. After all, you get a chance to grab that business before they actually have a chance to finalize their CU paperwork. It’s that small window of time that can be invaluable.

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.

3 Ways to Increase Your Chances of Stealing the Deal from the CU

Here are the tips that help your F&I compete:

  • Special 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. No buyer will be offended that you want to know if it means they think there is a chance you’ll beat it. 

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. 

Give a little to get a lot. 

  • Highlight Wide Variety of Sources- If your dealership has access to multiple financing sources, it has 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 as a high concentration of credit unions that are aggressively advertising used auto loan ‘sales’ as many do. 

truFinance, powered by truWarranty, can be a one-stop source for a diverse set of local banks and finance companies that can broaden the mix to offer in F&I. Prime, subprime, and near prime with lenders that approve fast and fund even faster. Plenty of room built in for F&I products presented in an all-in-one easy to use platform that makes approvals a breeze. With more finance options, your F&I staff is in a better position to beat the CU rate and build PVR.

  • Don’t Be Afraid of Indirect - Dealerships that have strong indirect lending relationships with local credit unions put themselves in a better position right from the start. To help get a share of that business back, reach out to local credit unions to see what their rules are and what the margin would be for your store. It’s not likely going to be a huge moneymaker 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.

Credit union buyers are not a lost cause for F&I. 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. As Experian highlighted in their data, credit unions are clearly taking advantage of a changing market and dealerships can easily be ready to counter it.

We here at truFinance can help your dealership open up to a bigger assortment of lending options for all of your customers. Give us a shout today and let us show you a better way to offer more to every customer…even members who think you can’t beat their deal.

date published
June 24, 2022

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