WASHINGTON—With longer-term auto financing becoming the norm as consumers seek to lower payments and address rising car prices, credit unions need to gain an even better grasp of the borrower, advises one automotive analyst.
David Jacobson, president of the Hauppauge, N.Y.-based GrooveCar, emphasized that with terms extending—approaching nearly a 70-month average on new cars—CUs need to make “discerning decisions.”
“You have a lot of new cars going out with financing at 84 months, so the credit union has to be careful to finance the right car and the right member,” said Jacobson, stressing the importance of understanding how well a car model’s value will hold as well as the member’s ability to repay. “Credit unions need to gear up and understand how to look at longer-term lending on auto because lending to the member, not just the collateral, becomes more important.”
Jacobson also cautioned that credit unions can’t simply rely on rate and expect auto dealers to send business their way.
“Some credit unions just put out a good rate and think that is the answer, but meanwhile they are not fitting into the dealer’s advance or their terms. For example, the credit union decides they are only going out four years on a used car, and then they wonder why they don’t get the business,” Jacobson told CUToday.info during CUNA’s Governmental Affairs Conference.
Credit unions, too, need to pay attention to “niche” lending, said Jacobson.
“For instance, we are working with a couple credit unions that can’t fight with the big banks in their markets and do 1.5% interest. But we found a way for them to lend longer term on some used cars, but healthy ones. And those loans have been performing well,” said Jacobson. “What they are doing is competing where most others are not, without taking on too much risk. We help credit unions find these opportunities that others are passing over by doing an analysis of their market.”
Jacobson said the approach can bring the credit union an extra five to six cars a week.
“That’s an extra 20 to 30 cars a month, and at $20,000 to $30,000 a car…I call them crumbs, but you know what, those crumbs add up—millions to the portfolio,” said Jacobson.
It’s time, as well, said Jacobson, that credit unions realize that leasing is here to stay. He said that in some pockets of the country more than two-thirds of a dealership’s new car sales go out via a lease.
“Leasing is not a fad,” said Jacobson. “We have been through four leasing cycles now with no trouble—lenders are being made whole and all is good.”
According to Experian Automotive, leasing set a new record in Q4 2015, accounting for 33.6% of all new financing.
Jacobson added that GrooveCar had its most successful year in 2015, backed by a retooled auto shopping/lending website that is optimized for mobile to attract Millennials.
“The website is custom-branded to the credit union and it is driving new members to CUs,” said Jacobson. “People can shop for a car and finance a car right on their phones. We are focused on driving youth to credit unions.”
Jacobson added that the new platform has helped increase GrooveCar’s national presence in the last six months, moving from four states in 2014 to 30 today.
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