Why it’s time to court credit unions

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It’s time for dealerships to embrace customers’ ties with their neighborhood credit unions and quit trying to steer them to other lenders. Working with local credit unions can help dealerships prevent not only chargebacks stemming from customer refinancing but also the red tape that can occur when dealing with faraway lending institutions.

That’s the takeaway from a pair of speakers at an Automotive News Webinar last week called “Building a Profitable Relationship With Your Local Credit Unions.”

Dealerships traditionally knock credit unions for advancing just enough money on an auto loan to cover the vehicle purchase. That makes it difficult if not impossible for dealerships to roll the cost of extended service contracts, guaranteed asset protection and other F&I products into the same finance contract as the vehicle. It also makes it tough for customers to finance the negative equity on their trade-in.

But credit unions are no longer inclined to skimp, according to Webinar speaker Richard Bellino, finance director for AutoFair Honda, in Manchester, N.H., part of the AutoFair Automotive Group, which has five dealerships in New Hampshire and Massachusetts.

“With credit unions you get generous advances,” Bellino said. “They give us open back end. They sell your GAP product, your warranty, your wheel-and-tire, your prepaid maintenance. Just about any ... product you can put on a contract, the credit unions will pick up.”

Bellino also said he likes that most credit unions are local: “You pick up the phone, you talk to these guys. They come in and see you. It’s such an important factor, so if you’re in a pinch the relationship is there. It’s not the big bank where I have to go through all this red tape to get anything done.”

There also could be negative consequences for trying too hard to get a loyal credit union customer to switch to another lender, the speakers said. That could include an increase in chargebacks if credit union customers switch back to their credit union after closing a deal with another lender. If that happens, the dealership loses not only whatever they made for arranging the financing but also the profits from aftermarket products, they said.

“I think it’s real important to remember your customer does have a relationship with that credit union,” said Ralph Larson, finance director at Dick Hannah Dealerships, with 13 dealerships in Washington and Oregon.

“They most likely have multiple loans there or have had. Their boat’s financed there, their RV is financed there, they have a home equity line there and so forth,” he said. “And so, we’ve got to keep that in mind when we’re working with them and considering other lending sources.”

You can reach Jim Henry at autonews@crain.com.

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