Though auto dealerships in most markets routinely have input on financing options, competition with credit unions can get heated in areas where credit union loyalty is high and financing discounting is heavy.
Credit unions can challenge information dealerships provide, buy finance deals at lower rates and prompt a tug of war over F&I profits with the customer in the middle.
Ron Reahard, president of F&I training company Reahard & Associates in Soddy Daisy, Tenn., said when dealers compete strictly on rates, credit unions have an advantage.
"It's hard to make money when you have to be the lowest [vehicle] price in town. It's the same with financing," Reahard told Automotive News.
The problem worsens when the credit unions also sell F&I products. Negative stereotypes associated with car dealerships can prevent customers from effectively weighing their financing options.
Ryan Driscoll, business manager at Hosmer Honda in Mason City, Iowa, says many credit unions around his store offer extended service contracts at a discount of $300 or more.
"It's a problem because we've closed them on the product, on the value of an extended service contract, and it might not be a better contract. It might not be the same coverage," Driscoll said. "But it might be cheaper."
Driscoll's dealership works regularly with three credit unions in his area through Dealertrack, but his biggest headache comes from the largest credit union in the area, Cent Credit Union, to which most of his customers are unwaveringly loyal.
Driscoll tries to get involved in deals as soon as possible to pitch customers on the benefits of opening an account with a lender besides their credit union. It helps, he says, that Hosmer Honda is a preferred dealer with America Honda Finance, so the store has the leverage to buy down a rate to match that of a credit union in the area. But even with early intervention, changing a customer's mind is never a sure thing.
"A lot of people do have a lot of history with these credit unions, and ... even if we can beat the rate, they'll say, 'I'll stick with my credit union,' " Driscoll said.