F&I managers, credit unions make peace
Once 'oil and water,' longtime adversaries embrace the benefits of working together
Stephanie Cooper, Timbrook Automotive: "We sat down with whoever was in charge of lending or the president of the credit union and said, 'This is our offer: We can increase your business by this amount of money, book this many more deals with you, if you guys give us the opportunity.'"
When Stephanie Cooper was finance manager at Timbrook Automotive's Buick-GMC and Kia dealerships in Cumberland, Md., she battled with local credit unions for years. Then three or four years ago, a credit union manager showed up and asked how he could get more of the dealerships' business.
Now that manager's credit union makes indirect loans to members who buy at Timbrook stores, finances add-ons such as extended service contracts and pays the dealership a fee for arranging the loans.
The credit union also extended its loan officers' hours to 6 p.m. during the week and added Saturday hours. After that, Cooper and her former finance director forged similar relationships with three other credit unions.
"We sat down with whoever was in charge of lending or the president of the credit union and said, 'This is our offer: We can increase your business by this amount of money, book this many more deals with you, if you guys give us the opportunity,'" says Cooper, who joined Timbrook's Chevrolet dealership in nearby Keyser, W.Va., as its finance manager in mid-October.
"We had to baby-step it and let them know, 'We're not trying to take your business away.' I'm a local person and I'm all about keeping money inside this community."
It's no secret: The relationship between dealership finance and insurance departments and credit unions can be dicey. Credit unions traditionally make auto loans directly to members, a practice that generally blocks dealerships from collecting money for arranging those loans.
And loans arranged by credit unions leave little or no room for selling and financing products such as service contracts; guaranteed asset protection, also known as GAP; and credit life insurance, which covers the balance on the auto loan if the customer dies.
Things used to be so bad that credit unions regularly warned members to stay away from the dealership F&I office because "they'll lie, cheat and steal," says Dave Robertson, executive director of the Association of Finance & Insurance Professionals.
But the relationship over the past 20 years or so has improved a lot, he adds.
"Now it's hard to find a dealership that doesn't have one or two relationships with a credit union," Robertson says. "Dealers have a lot of credit union buyers, and it's a convenience to them to have the credit union [financing] available in the store."
Some credit unions have branched out to offer loans arranged by the dealership F&I department -- also known as indirect loans -- to members and pay dealerships a fee for arranging the loans. They are also more likely to finance products sold by the F&I department.
In turn, dealerships say they help credit unions by creating a faster, more streamlined financing experience for members and by sending the financial institutions business.
Boutelle: Credit unions grasp dealers' needs.
Tony Boutelle, CEO of CUDL, an auto lending service network administrator for 1,060 credit unions that work with more than 10,000 dealerships, says the previous relationship between credit unions and dealerships was akin to "oil and water."
On average, CUDL credit unions make 70,000 auto loans a month valued at $1.5 billion, and indirect lending is up 17 percent from last year, he says. CUDL is owned by credit unions.
Boutelle says credit unions on his platform recognize that their members see value in F&I products and they recognize that dealerships need to sell these products.
"When you're making $100 on a car these days, you've got to make a little more margin in something else," Boutelle says. Credit unions "understand that that is part of the process."
The relationship between credit unions and dealerships got a bit warmer when the recession created a credit freeze that affected dealerships and their customers.
Boutelle said credit unions were not involved in the mortgage lending mess and had money to lend.
In the second quarter of 2008, at the onset of the recession, credit unions' share of the auto loan market was just under 18 percent, according the Experian Automotive, which compiles and analyzes auto loan data.
That grew to 24 percent in the second quarter of 2009, when the economy was at its lowest point, and dropped to just over 18 percent in second quarter of 2010.
In the second quarter of this year, credit unions' share of the auto loan market stood at just over 15 percent.
"We had lots of dealers in general, and Chrysler dealers in particular, that we helped get through the recession," Boutelle says.
"We are still there for them, but others have come back into the [lending] market, so there is more competition."
The relationships between some credit unions and dealerships have evolved so much that when members whose loans have been approved in advance arrive at the dealership, the credit unions allow F&I managers access to that loan information electronically, making the finance process easier and faster.
Some auto retailers, such as McCombs Automotive in San Antonio, go as far as helping customers who are not credit union members find a credit union for which they qualify for membership.
The F&I department signs them up for credit union membership, including springing for their membership fees, then handles the customers' financing at the dealership.
"It's not as hard to join a credit union as it used to be," says Mirt Medina, head of F&I operations at the seven-dealership McCombs group, which does indirect lending with three major credit unions in the area.
"We pay a $5 membership fee that goes into a savings account" in the customer's name.
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