Every month seems to bring a new headline about the continued surge in vehicle sales, even among segments that took a monumental beating during the recession just a few years ago.
The latest, from the International Business Tribune: “May 2015 Sales Shatter Forecasts as Americans Flocked to Trucks, SUVs.”
Flock they did — and still do. Nearly 17.8 million vehicles sold in the 12 months ending in May, marking the highest seasonally adjusted annualized rate since mid-2005. Used car sales also are on a hot streak, fueled in part by the trade-in market.
According to the Credit Union National Association (CUNA), credit unions experienced nearly 20% year-over-year growth in new-auto loans and almost 12% annualized growth in used-auto loans in 2014, and the trade association’s economists predict another year of double-digit growth in 2015.
So the relevant question for credit unions is, are your members flocking to you for loans to secure their new wheels?
Because if you aren’t realizing some of this windfall, that means your competitors are stealing your members’ business out from under you. And unless you’re positively killing it in this sector, you likely have room to grow.
Some naysayers caution that the expected federal-funds rate hike later this year will dampen buyers’ enthusiasm. But the slight uptick in interest rates can be offset in consumers’ lens by ever-longer loan terms, which have reached a record average term of 67 months, keeping monthly payments affordable.
Also, the average age of the U.S. auto fleet remains at 11 years, a sure sign that pent-up consumer demand will fuel the purchase market for at least the next few years. At his presentation to the Automotive News World Congress in January, John Murphy, the lead U.S. auto analyst in equity research with Bank of America Merrill Lynch, forecast that auto sales will continue their rise to a peak of 20 million in 2018 before receding.
So, strike while the iron is hot. Consider acting on these nine ways to increase your credit union’s auto loan volume:
Speed up the loan approval process. Patience might still be a virtue, but you can’t expect consumers to practice it. Experts advise that you develop an “auto-approve mindset” by developing data-driven standards that you regularly re-evaluate to maximize loan quality. Short of that, many credit unions have developed “starter” applications that take just a minute to complete and have proven to be effective lead generators. It’s crucial that you have a system in place to handle these processes.
Strengthen your indirect relationships. This means pounding the pavement, having good old-fashioned face-to-face conversations — both to raise awareness of your credit union’s mission and any upcoming promotions, as well as working through any sticking points that might exist from their end of the relationship. One area worth exploring is an exception to your loan-to-value limit for high-quality loans, which could allow a dealer to fold an extended warranty into the terms. And while the Consumer Financial Protection Bureau (CFPB) has pledged to scrutinize dealer mark-ups, allowing your indirect partner some discretion could be the differentiator for your credit union in an overly competitive market.
Appeal to the millennial demographic. Certainly, baby boomers have been pining for new cars for some time, and are a major factor in this recent surge. But credit unions already fare well among that set. Kill two birds with one stone by appealing to millennials, who finally have made their presence felt as purchasers and badly want that first set of real wheels. Target these consumers entering their prime borrowing years by marketing appealing offers through channels that appeal to them, particularly social media.
Enhance your outbound marketing, Mine databases to target likely loan candidates, based on their existing auto loans — or lack thereof. With so many people in need of vehicles, the net can be cast wide. Some credit unions have generated amazing returns through call center marketing. And you’d also be wise to dial up your direct mail. Don’t laugh — this time-tested medium has experienced a rebirth. The price is right and the returns can be plentiful.
Offer longer loan terms. It used to be that no one wanted to offer loans longer than 60 months. But that convention has faded, both because of rising auto prices and the reality that cars retain their value much longer these days, because they’re built to last longer. Longer terms equals lower monthly payments, which is a major focus for many consumers. According to Experian, loans with terms of 73 to 84 months now comprise 29.5% of the market.
Don’t snub C, D, and even E paper. Once more, analytics has changed the game. Rate-based lending is a win-win for financial institutions and consumers, allowing more people access to financing at terms that allow for healthy gains for lenders.
Never say never. It’s smart business to eliminate “no” from your vocabulary when it comes to loan applications. The emotional impact of denial is intense, and in many cases, permanently severs a banking relationship. You can’t always say “yes” — sometimes, members’ eyes are too big for their pocketbooks. But you can explain why that loan won’t work — and show them a pathway to improve their credit and perhaps recalibrate their sights on a vehicle that better matches their income and needs. Solid coaching can lay the foundation for future loans, and a lengthy relationship.
Sow seeds at your SEGs. And through all of your business development functions. Nurture these relationships through financial literacy classes, and offer special terms to your most loyal and productive employers or groups.
Proactively address risk. Establish or reaffirm a risk management system that employs data analytics to recognize warning signs of troubled loans and triggers interventions to rejuvenate them. Fortunately, the national auto loan delinquency level projects to remain low for the near future; TransUnion projects a 1.27% rate at the end of the year. But as auto loan balances swell — Experian says the average new-auto loan has risen to $28,711 — so do the stakes. Protect yourself accordingly.