Trends and Opportunities in Auto Lending

woman using a laptop and a phone to do car shopping
Stephenie Williams Photo
VP/Financial Institution Marketing Product and Strategy

6 minutes

9 ways credit union lenders can reach today’s consumers and deliver what they need

Sponsored by Harland Clarke

A record $2 trillion surge in cash hit the deposit accounts of U.S. banks since the coronavirus first struck the U.S. in January 2020, according to the second quarter 2020 FDIC Quarterly report. With interest rates near zero, net interest margins have narrowed, making it harder for financial institutions to turn cash around. Financial institutions would love to make loans, but there are few opportunities to grow right now.

Though the pandemic has introduced some changes in the auto and auto lending industries, there is consistent demand for lending for financial institutions that know the market well, identify current trends and develop a plan to seize opportunities to drive lending.

The Impact of COVID-19

The pandemic has already had a significant effect on the auto and auto finance industries, and we’ll continue to see this play out. For example, social distancing guidelines contribute to consumers spending less time on dealership lots and more time online on third-party and contactless vehicle delivery sites. Many see car ownership as a safer alternative to public transportation. While it’s true that some consumers are struggling in the midst of job loss due to pandemic conditions, others are sitting on cash as they save more to weather economic uncertainty. As the Fed takes action on interest rates to shore up the economy through the pandemic, credit unions and dealerships have to adjust their marketing accordingly.

What to expect post-recession. Used car values typically decline during a recession. We expect to see that again, and that the pandemic will exacerbate this decline, according to this article from Edmunds.  However, another article from Edmunds suggests that post-recession, as the economy rebounds, consumers will likely seek out used vehicles as a more affordable alternative to new vehicle purchases.

Currently, 28% of consumers have delayed their vehicle purchases as a result of COVID-19, which means that 72% might still be shopping, according to Cox Automotive.

Nine Opportunities for Credit Unions

How can credit unions leverage current auto trends and prepare for the future? We offer nine ways credit union lenders can reach today’s consumers and deliver what they need.

1. Offer preapprovals early (and often). By the time an auto shopper visits a dealership, they are likely to have conducted an average of 13-14 hours of research, spending fewer days in the market for a vehicle. While more than 61% of new car financing is done through vehicle manufacturer or dealership “captive” financing deals, used car financing is dominated by banks and credit unions.

To capture those prospects, credit unions must reach shoppers early in their research phase before they visit a dealer and become susceptible to manufacturer or dealer financing options.

Proactive, pre-approved auto loan offers to members delivered in a multichannel campaign not only help ensure your offer is top-of-mind the moment members need an auto loan but also create a positive member experience.

2. Maximize digital branding and offer awareness campaigns. Marketers can now identify likely auto buyers early in their research phase by their internet browsing behavior and physical location. Third-party sites are the most used for car shopping (and many allow ads!), and 80% of all car buyers visit them during the shopping process. Car buyers do not enjoy the finance part of buying a car at a dealership, so promote the benefits of taking care of this in advance. Brand yourself as a trusted provider of an easy auto loan process.

3. Engage trigger-based pre-approvals. There’s no better indication of intent than a member asking to have their credit run for a new auto loan. Auto shoppers at this stage may also get pre-approved to find out how much they can afford to spend, giving you an opportunity to win their business. But it’s essential to catch them before the loan is originated elsewhere. A proactive contact center phone call can help ensure you reach the member with your offer in time to be considered.

4. Offer education. Members of Gen Y and millennials value companies that offer educational resources that help them make smart financial decisions. Teaching them the ins and outs of vehicle financing will help position your institution as a top-of-mind favorite when it comes time to signing on the dotted line.

5. Ensure a positive digital experience.  Experience is huge for the growing millennial and Gen Y segment. Entirely online and mobile auto loan applications optimized for member experience are essential to capture more loans from this consumer segment. For starters, the digital experience should be intuitive, using autofill, conditional fields based on previously entered information, data validation that ensures correct and accurate application information, and digital capture of driver’s licenses and other documentation for a paperless experience.

6. Utilize quick decisioning for auto loans. Quick decisioning automatically qualifies applications with exceptional credit scores and offers the best terms to those members. It also automatically declines applicants whose attributes indicate they are a high risk or do not meet your credit guidelines. You can even automatically structure loan offers by modifying the loan terms to present other acceptable deals if an applicant initially falls short of your credit criteria, such as by offering lower loan amounts or shorter loan terms.

7. Use alternative credit data. Verify financial strength for those who are too young to have established stellar credit scores but are low credit risks by examining such things as their record of rental, utility and other payments, employment history and stable address history.

8. Use auto refinance as a tool to build goodwill with members and deepen relationships. Car buyers who got their loan from a dealer are often paying higher rates than they would if their loans were with credit unions. Even indirect loans through traditional lenders carry slightly higher rates to compensate the dealer. Let members know that they have options, even after their initial finance deal. When rates have decreased, members can save money with a lower payment. When members’ credit scores improve, they may qualify for more favorable terms. Consumers with long loan terms can restructure to a shorter term and avoid owing more than their car is worth. You may have loyalty programs that offer benefits for more product ownership.

9. Continue marketing after the deal is closed. Remember, auto loan holders are likely to need other loan products and credit cards. Continuously and proactively market other pre-approved offers to them as well as provide loan education, especially for millennials and Gen Z. They will consider their experience with your institution on the auto loan an indicator of the experience they’ll have with you on other loans.

Credit unions should also take advantage of the opportunity to convert indirect members who come in through partnerships with dealers.

Auto lending remains a powerful opportunity for credit unions. By combining a digital-first process with a strong orientation toward member experience, credit unions can position themselves to become the go-to resource for consumers in the market for an auto loan.

Executive Director/Acquisition Solutions Stephenie Williams brings 20-plus years of progressively responsible experience in direct marketing, strategic planning, product management, vendor management, retail communications, project management, advertising agency relations, supervision and promotions in the financial services, retail and automotive industries to her work for CUES Supplier member Harland Clarke, San Antonio. She has demonstrated success in creating business cases to sell ideas, managing and inspiring organizational change and enhancing organizational communication practices.

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