Relationships, tools build auto loan business

San Diego — Despite continued low-vehicle inventory and rising interest rates, auto lending shows strong growth. Some of the top thinkers in the industry gathered here in late April for the Auto Finance Risk Summit for keynote talks and panel discussions covering some of the most pressing issues facing the industry.

One panel discussion attended by Automotive News centered on how best to retain dealer market share and engagement. The panelists were: Rich Black, director of indirect business development at Oregon Community Credit Union; Mark Chandler, vice president of business development at Credit Union Leasing of America; and Darren Lorentz, senior vice president of product management at CUDL.

Among the topics they discussed were why it's a great time to be a credit union in automotive lending; how to use digital tools to enhance communications between the lender and dealer; tips to improve dealer retention; what variables are making lenders more competitive; and possible road bumps ahead as the market stabilizes.

Here are edited excerpts.

Q: How do you build and maintain relationships with dealer partners?

A: Black: We really, from the origination side, focus on dealer needs. We really get a lot of input from dealers, and I think we leverage that knowledge into our program. And that's just a constant flow. We get needs that come in, short-term things or events — a new store is opening or something. We try to incorporate all those things into the program so it's not just us giving them a rate sheet — it's more of a partnership agreement. That's how we've grown our product.

Chandler: The point of sale is the key to any indirect lending platform. You have to make an impact at the point of sale. It's got to be easy for the dealer. They can't think out of the box. They've got to go with the same systems. Make it simple. If they have to take it out of the box, it is probably going to be less successful. We have a couple of acronyms. [The first is] CVS. It's consistent visibility strategy between us and our partners and our credit union partners. We want to be in front of the dealer every two weeks or so. The second thing we have is the three V's — visits of value add volume. I don't want our team to show up and just drop off cookies and pens and Post-its. The goal is for our team to show up and the dealer comes out and opens the door for them. They've got to come prepared with real-time data, examples of how we can do better for them over any other lender.

Lorentz: We have kind of a different position. I'm not the lender, I'm not the dealer. We kind of sit in between and facilitate the origination of the transactions. I've seen a lot of lender strategies that are ridiculously bad and don't work. I've also seen strategies that are really good. Those strategies that are really good fall into [where] it's a relationship with that dealer or that group of dealers. When you look at a relationship, what do you want? You want respect. You want attention. You want to have your needs met. And this is on both sides. Those lenders who approached it with the dealer as more of a portfolio lending, they define what they need out of this. The dealer also defined what they need out of this. And they kind of meet each other in the middle as give-and-take. Both sides are getting what they want. The dealer will hold on to that relationship with everything they have because they will save them in those hard times.

Is buying dealer market share a good strategy?

Lorentz: If you go into a market and you buy the market, you will get noticed, you will get loans, you'll get a whole lot of stuff you don't want. And as soon as you figure out you can't pay that much for that long, you have to wind it back. You will get forgotten about. It's not a sustainable strategy. It is temporary, short term. Maybe if you pulled out of the market and you're trying to get noticed — use it as a temporary mechanism to at least get your name known. It is not a sustainable strategy at all.

What technologies have your companies implemented to enhance the lending experience for your dealer partners?

Black: We are always looking at new opportunities to enhance the relationship by communication. And I think the biggest piece of relationships for us is frequent communication. Whatever we can do, whether it's through just using existing technologies through text or via the CUDL channel — gathering all of the information we can to be able to reach our dealers. I have a [customer] who has everybody's Facebook [contact], and he's always throwing things [out on] Facebook. I'm a big analytics guy. I analyze most everything, and I watch those for him. There's really a lot of empirical evidence showing how those things really capture and hold those relationships the more frequent you have contact. The more ways we can reach out and do those things, the better we are. I think that's had a lot to do with our success — increasing that frequency, increasing the personal touch there with dealers and with their staff.

Lorentz: When we look at how to apply technology, it's how do we automate those kinds of mindless, brainless tasks — let's say underwriting. How do we eliminate all the easy Yes's and the easy No's and allow that time for the credit union staff to interact with that dealer on the middle section of applications that need more talk? Same thing on the back end. We're looking at soon rolling out some automation capabilities on funding loan validation. So this is about removing all the easy stuff and allowing your staff to work only on those things that should require their attention. Everything else is removed.

Chandler: If you think about the ecosystem — for us it's leasing, but it's the same for retail — it's the lender, the consumer and the dealership. Sometimes the dealership is not held as high on the pedestal of the ecosystem of leasing. I always say to our team, I don't want to just sign up a dealership, I want you to adopt them into our family.

What are the opportunities for credit unions in this low-vehicle-incentive market?

Chandler: We always have kind of our staple manufacturers we went after. We go where the data takes us, and we're really strong on Stellantis products because they don't have a captive as of now, [though] they're creating one. And then we did work with Toyota and Honda — those were the three main ones. What's happened now is the data has opened up a ton more manufacturers. So we're really doing a lot of volume with Volkswagen, with Hyundai, with Subaru. It's expanded for us because we go in based on the data. And in the past because of the incentives by those captives associated with those manufacturers, we couldn't win. But now we're winning. So for us, it's just opened up a lot more dealers and a lot more makes and models.

Black: When COVID hit, we were one of the few lenders that actually stepped into the gap and increased volume. We had people out in the market almost immediately, either on phones or masked up driving by and waving. We had them out there to keep our presence out there. As the prices of things increased, we had this increasing pressure from dealers to get [them] higher [loan-to-value], higher back ends. Judiciously, we did that in little increments. I think what came from that is we go from a lot of large dealer groups of new-car stores who really became closely knit with our program. And so they started almost not really driving our program but helping us create that program for them. We've been able to capture a lot of those large dealer groups over a period of time that we didn't in the past. In the past, they were primarily [used-vehicle dealers]. We had a much higher ratio of new to used — controlled of course by inventories because there isn't a lot of new inventory, as we all know. We've seen a real significant increase in new associations with the OEMs with us because of the program development we've kind of done in conjunction with them.

Lorentz: The lower — or fewer — incentives and the 0 percent financing has really opened up the credit union markets. We are doing record volumes. This year is much better than last year. Oregon Community is an example, but most of our credit unions are generating record loan volumes. And I don't see that stopping for us in the near term. For us, what are we doing? We're trying to create those new pathways of where we think the business is going to be going. And make sure we handle and facilitate the originations today, but also tomorrow the new pathways that are coming.

What's an example of an idea you brought to the dealership?

Black: One of the early challenges we ran into was that different lenders would use different credit bureaus. We were with Equifax at the time and would find [some] competitors just didn't use it. One of the things we brought to the table was, "Let's just look at all of them within reason." That would be one example of just meeting the market where it is and trying to create a competitive advantage out of those little things. Try to do some little nuance every time we get into the dealership.

Why is it important for lenders to be accessible and available?

Chandler: The dealerships — they think captive first generally. When you have instant accessibility, someone who can make decisions on the call — you move to the top of the heap as far as most important. You guys [at Oregon Community Credit Union] do that so well with your crazy hours and how many funders you have. Now [it's], "We need to call Oregon Community," not "We have to call the captive." It's so important. We have so many lenders who are closed on Sundays. We're not going to get any deals on Sundays if there's one that's kind of on the gray area because they want instant accessibility.

Black: That's one of the things we found from relationships was that 6 o'clock came and we would look at the analysis, and we had 34 calls after 7:30. And they didn't get decisioned till Monday because it happened to be a Friday. As evolution came, we found technology to allow us to decision 24/7. And as we hired new business development staff, they just understood that. The interesting thing is, from a business development staffing point, my team is — all but one — retired GMs and dealers who have done both, from the retail side to the lending side. I think last we looked, we had about 220 years in the car business on the team before we went to the lending side. I think that's driven that [emphasis on accessibility], too — because you've sat in that chair; you know what needs to be done to move the needle a little bit. They're always in my ear, "We need to do this." We're not quick to move; we're glacial like most credit unions, but we get there.