Car Sales Are Still Happening. Here’s How Credit Unions Can Stay in the Financing Game.

Business intelligence drives credit union auto lending innovation.

By Vicki Potter, Senior Analytics Performance Manager, AdvantEdge Analytics

Historically speaking, fall is typically an ideal time to buy a car. That’s when automakers and their vast dealership networks adopt an “out with the old and in with the new” strategy. In 2020, however, it’s a lot more difficult to clear out inventory to make room for the latest models. As a result, we’re seeing car companies pull some pretty creative levers to try and reignite America’s love affair with cars.

Credit unions and their indirect lending teams would be wise to prepare for a steady increase in activity, as well as enhancements to the financing experience to meet the expectations of pandemic-era borrowers.

The first thing we’re seeing auto giants do is launch a series of highly unprecedented programs. For example, one automaker is offering $7,000 cash back on a $40,000 vehicle. Another is allowing any buyer who loses a job within a year of their purchase to return the vehicle at no cost.

Other changes we’re seeing are within the buyer experience wheelhouse. Dealers are making it easier to shop from home; some are even offering new vehicle deliveries right to the buyer’s door. Car and Driver calls the industry’s long-awaited adoption of e-commerce "The Enlightenment," saying, “After decades of resisting change, car dealers are finally conducting business online.”

Whether pricing programs and new digital experiences stimulate the desired amount of purchase activity remains to be seen. However, there is some gas in the tank of increased sales; every automaker that reported its data revealed year-over-year increases of large-vehicle sales in September 2020. And, with large vehicles come large price tags, and often, large loan balances.

Credit unions preparing for a potential uptick in activity should keep the following three things in mind:

  1. Credit union financing must integrate with digital auto sales. If a prospective member is not visiting a dealership in person, he or she may not have as much exposure to credit union lending options. Indirect teams should be in close contact with their dealer partners to ensure potential members are presented with credit union financing offers during the online experience.

  2. Manufacturer financing is becoming more competitive. If car buyers are unsure about their job status, especially as talks of continued economic pain from the pandemic linger, they will be drawn to flexible financing options. Credit unions should closely monitor competitive financing offers from automakers and match (or beat) them whenever possible. There is a strong financial wellness call to action here, as well. Just because a flexible lending term is available to a member doesn’t mean it’s good for the member. Credit unions can stand apart from competitors by wrapping financing options in a consultative bow, prioritizing the member’s long-term financial health over profit.

  3. Used car sales are evolving at the same pace. The average credit union’s indirect portfolio consists largely of used car loans, so it may be tempting to think the above trends may not have as much impact. That is far from the case. Several used car market disruptors are serving car-buyers digitally with door-to-door experiences. Credit unions with interest in the used market should be exploring partnerships with digital-centric auto buying marketplaces.

Leveraging Data Analytics to Drive Indirect Evolution

Data analytics has a sizable role to play in making some of the strategic decisions and bold moves required by the above trends. Here are a few things to keep in mind as you harness your data to evolve your indirect lending program:

Garden variety data is powerful. While it’s true your automaker, dealer and financing company competitors have huge amounts of data to drive their decisioning, it’s also true your credit union has a trove of intelligence within its systems. Every credit union with an indirect loan portfolio has access to each of the sources and fields in the image below. Use it to evaluate and compare the health of different dealer relationships. Who is sending you business? Whose business has fallen off at a higher rate than others? You can also analyze this data to determine things like loan payoff dates and profitability across different types of loans.

Dealer Analysis Execution

Data Fields Needed

Leveraging Data Analytics to Drive Indirect Evolution

Online tools turn out basic intelligence super quickly. Microsoft offers a free version of Power BI that credit unions can easily access to generate baseline intelligence and achieve faster interpretation of the data. I experimented with this tool myself and was able to develop a really nice visualization of an imaginary credit union’s dealership relationships with very basic data. (You can see the results at the 17-minute mark of this recent presentation.)

Analysis is one thing, activation is another. Business intelligence is only valuable when it is translated into action. Use the information you uncover to evolve your strategies for the pandemic and the future. Keep a pulse on your credit union’s and your member borrowers’ circumstances because they may change quickly given the uncertainty we continue to face.

To learn more about how your credit union’s data can help you evolve your indirect lending strategies for the now and the near-next, check out the VantEdge Point webinar my colleague Keith Dunlap and I recently presented: Act on Indirect Lending Insights to Increase Growth.