Auto loans remained credit unions’ financial sweet spot for growth in 2016. Over the past year, vehicle loan balances increased by $37.6 billion (14.3%), beating mortgages as the leading source of growth. All indicators point to auto loan growth remaining stable and a perfect climate that will provide continued opportunities for credit unions to succeed. To take advantage of these strong market conditions and build out auto loan portfolios, here are some tips to jump start the process.
Identify sources of auto loan growth. Your credit union can draw members’ attention through many channels. From utilizing traditional traffic coming into the branches, digital traffic online, cross-marketing, preferred dealer networks and auto leasing, many fruitful resources exist to take advantage of. But often, we spend time promoting a message that really doesn't hit the mark. Don't assume you know what they need. Instead, look around at what you offer and position it better. In addition, make sure you are using all the marketing channels you have at your disposal and do so effectively.
Know your member. Providing great rates may not translate with many members of your audience. Step back and look at the message of “great rate.” Why should they do business with you? For instance, you can teach them how to get into a vehicle or take out a mortgage. Walk them through the steps, educate them, provide real-life numbers and tell them how your credit union is different. Take for instance that 92% of millennials choose their financial institution based on its digital services. By promoting the rate, you may not reach this market, so it's important to give them what they want. The goal is to attract and serve.
Don't make assumptions. Boomers are very loyal to their financial relationships. Millennials and Gen Xers are less so. For millennials, loyalty comes through the dependence on mobile banking more than it does for other generations. Here's what all the generations agree on when it comes to a financial partner: Honest communication, feeling the credit union has their best interests at heart, financial dealings that are reliable and above all accurate, knowledgeable credit union staff members and a demonstrated appreciation for members. Is your messaging checking the boxes off on this list?
Use preferred dealer networks. This is one of the best ways to increase loan volume. There's revenue to be found in relationships with dealerships that return business to you. Consider these steps:
Identify the dealerships sending business to you.
Ask yourself: When was the last time you had conversations with dealers in your preferred dealer network? Did you let them know about the marketing your credit union is doing to send business to them?
Concentrate on dealers who will send business your way and reward them by promoting them on your auto resource.
Remain consistent with communications.
Leverage leasing trends. In certain regions of the U.S., leasing accounts for upwards of 70% of auto loan transactions. Credit unions without a lease program in these regions are fighting over the remaining 30% of business. While leasing is extremely popular and profitable, credit unions also need to be aware of the potential risks. Here are some considerations:
Does your credit union possess the ability to predict residual values on autos?
If a third party is determining residual values, shouldn't it also own the residual risk?
If your credit union owns the residual risk, how much are you going to reserve for losses?
Ultimately, leasing makes sense for capturing volume, but you need to have a strong understanding of what happens when the lease matures. A clear picture of how growth is derived and areas that could drive more opportunity will have your credit union on the path to riches.
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