The leading provider of auto loans in New Hampshire isn't a bank or a captive finance company.
It's a credit union.
A look at how Northeast Credit Union in Portsmouth, N.H., rose to prominence in the state illustrates how credit unions are expanding their role in auto lending nationwide while smoothing what for many years was often a fractious relationship between dealerships and those lenders.
Northeast Credit Union's success fostering dealership relationships, using face-to-face interactions and maintaining consistent lending practices gave it a market-leading 8.4 percent share of the New Hampshire auto loan market in 2013, data from Experian Automotive's AutoCount show. In 2012, it had been No. 3, with a 6 percent share.
"They're good people without being pretentious," Cheikh Dieng, business manager at Allen Mello Chrysler-Jeep-Dodge-Ram in Nashua, N.H., said of Northeast Credit Union. "They help us. We help them back."
Credit unions, once largely ignored by dealers as go-to sources of auto loans, emerged from the downturn as primary lending providers for retailers, often ahead of banks and automakers' captive finance companies.
Dealers historically had preferred banks and captives because those lenders compensated them for arranging car buyers' loans. Banks and captives also were often willing to boost loan amounts so that car buyers could finance dealers' add-on F&I products.
In contrast, credit unions traditionally made auto loans directly to members, blocking dealerships' opportunity to make money from arranging those loans.
But when the recession hit in 2008, many banks and captives sharply restricted auto lending, leaving dealerships scrambling to get customers financed.
Credit unions stepped in to fill the void. When the industry began to recover, credit unions maintained a strong hold, cementing newfound relationships with dealerships and eventually becoming indispensable.
Through April, credit unions as a group that does business with online network Credit Union Direct Lending accounted for the fourth-largest volume of indirect auto loans -- that is, loans arranged via dealerships -- behind Wells Fargo Dealer Services, Ally and Chase Auto Finance, AutoCount data show. CUDL is a brand of CU Direct Corp. There are 1,100 credit unions, including Northeast Credit Union, and 11,000 dealerships on the CUDL network.
Credit unions rise
Auto lending by CUDL-affiliated credit unions spurted in 2008. As a group, credit unions on the CUDL network jumped from being the seventh-largest providers of indirect auto loans by volume in the first quarter of that year to being the third-largest providers by volume in the first quarter of 2009.
They've now slipped to fourth as banks and captives have recovered, but a strong focus on indirect lending continues to help them grow. According to CU Direct, credit unions had about $74.4 billion in total outstanding indirect loans in 2009. That number grew to $93.4 billion in 2013.
Credit unions have remained consistent with dealers, said Jerry Neemann, executive vice president of automotive solutions at CU Direct. The ability of dealerships to originate the loan then sell it to a credit union increases convenience and flexibility for both sides, he said. It also allows credit unions to increase membership and offer additional lending services.
By issuing most of their loans to prime borrowers, credit unions have been able to maintain consistent revenue. With about 68 percent of borrowers at prime or near prime levels, according to Experian, credit unions reduce the risk of default on their loans to members -- which is important, given that credit unions are lending out their members' funds.
On the other hand, during the recession, banks found that their subprime customers defaulted on auto loans far less than they defaulted on mortgages. In other words, consumers skipped their house payments but kept up on their car payments so they wouldn't lose their vehicles, which they needed to get to their jobs.
Looking forward, Neemann said, there's not much room left in the lending market for credit unions to grow.
"As a whole, I think maintaining market share would be good," he said. "Maintaining that and maintaining credit quality would be a good thing."
Secrets of success
Northeast Credit Union has operated in New Hampshire since 1936. It has offered auto loans for 13 years, in addition to loans for RVs, mortgages, home equity, home improvement, credit cards, personal finances and small businesses. In 2013, it lent about $801 million, net, to members and had a net income of about $5 million.
Twelve employees, or about 4 percent of the credit union's staff, are dedicated to indirect auto loans. Thomas Weaver, the company's chief lending officer, said the entire staff plays a role in the auto loan division, but the credit union decided to form the specialized team in 2007.
The need for the team arose partly from the fact that most of Northeast Credit Union's auto loans are indirect. Weaver said more than $250 million of the $300 million in auto loans Northeast Credit Union issued in 2013 were indirect.
With the dedicated team, the credit union has been able to foster personal relationships with dealerships across New Hampshire.
"We have a consistent relationship," Weaver said. "It arrives from fast decisions, consistent decisions, fast funding and flexibility."
Three members of the team spend most of their time on the road, making face-to-face visits with dealership general managers and F&I managers.
"One of the keys to our success is building a relationship with the general manager as well as the F&I manager," Weaver said. "Finance managers move around more frequently. If we can build a relationship at all levels, it's easier for them to direct business to us."
Northeast Credit Union uses those personal interactions to clearly communicate to the dealerships its criteria for buying a loan. "It's got to be a win-win relationship with the dealer," Weaver said.
Weaver said the credit union will decide to buy if the loan "makes sense." The program is primarily priced on risk and credit score. He added that the credit union has a "generous advance program" that offers up to 125 percent of a vehicle's sticker price.
Weaver said that more than 70 percent of the lender's funded loans went to prime-risk borrowers with credit scores of more than 700.
"We don't take subprime paper to get prime paper," he said. "We don't turn the faucet on, then shut it off. We have a consistent program and we stick with it."
New Hampshire dealerships have shown their appreciation for the extra attention and Northeast Credit Union's consistency by continuing to direct more of their loans to the credit union.
Dieng, who has worked in dealerships for about 30 years, said his Nashua store has been doing more extensive business with Northeast Credit Union over the past two years. The credit union now accounts for about half of the dealership's loans.
"They're available for extensive hours, they're predictable and we know how they buy," he said.
The business manager said customers' heightened awareness of interest rates since the recession has increased the necessity of working with credit unions such as Northeast Credit Union.
In the past, Dieng said, the F&I department's income came mainly from large markups on loan deals from banks.
"We still get enough income on markup rates with Northeast because of volume," he said.
Dieng said Northeast Credit Union has been especially flexible in allowing the financing of add-on F&I products. He said the credit union's reliability makes it easy to know what loans they will buy, and the dealership can act accordingly.
"We talk to them so much that they've become friends," Dieng said. "They visit us, see where we are. They take care of our gripes."
Good paper, smart deals
Darrell Alberico, business manager at Benson Auto Co., a Chevrolet dealership in Franklin, N.H., said that over the past six years, Northeast Credit Union has captured 50 to 60 percent of its loans.
"They do everything right, and their funding is great," Alberico said.
He said the credit union's predictable lending patterns allow his dealership's F&I department to sell more add-on products to customers at lower rates.
"They kind of act like a larger captive," Alberico said. "They buy good paper and they make smart deals."
Northeast's Weaver said that though overall market performance is a major decider of his company's market share, familiarity will always be a factor when dealerships decide where to bring their loans.
"A friendlier, warm face," Weaver said, "leads to repeat business."
• Has 12 employees dedicated to indirect auto loans
• Has 3 employees who visit dealerships' general managers and F&I managers
• Ensures the road team clearly communicates the credit union's criteria for buying a loan
• Keeps lending consistent, funding mostly prime-risk borrowers
• Advances up to 125% of vehicle sticker price, allowing for financing of F&I products