FT. LAUDERDALE, Fla.–What are the secrets to making an indirect lending agreement work with an auto dealer? What are credit unions doing right and wrong? Is there any space beyond the captive lenders?
Those questions and others were asked and discussed during a panel discussion at the CUNA Lending Council annual meeting here. Participating on the panel were Matt Phelan, general manager of Niello Audi in Sacramento, Calif.; Mary Byrne, general manager of Bruce Titus Auto Group in Olympia, Wash., and Debbie Tarbuck, senior manager-direct lending with BECU in Seattle.
The discussion was moderated by Neil Goldman of Goldman Consulting & Strategy in Del Aire, Calif. Here’s a look at the questions that were posed by Goldman and how the panelists responded:
Goldman: How to you become the “’lender of choice, the go-to’ credit union?”
From left, Matt Phelan, Mary Byrne at Debbie Tarbuck at CUNA Lending Conference in Ft. Lauderdale.
Phelan: You start by building relationships. It’s all too often we have people who stop by and show us a program, but they don’t get to know the dealer and how they operate. And there are no two dealerships that are the same. The one thing we share in common is we are looking for a dealership.
Byrne: Relationship is most important to me, but not just the relationships, transparency. You credit unions are like us dealers; you have a niche and you can’t be everything to everyone. We are a one-price shop. When some of your reps come in and say ‘We buy everything, we’re broad spectrum,’ no, admit you’re not and find your niche and own your niche. Everybody has something different; own it and be the best at it.
Also, make sure you are talking to the right people. We have multiple stores, which means we have different reps depending on location of the store. It’s really common for your reps to come see your finance people and think that’s where your relationship is. In most of our stores is it our sales desks that that strcture the deals and thinks they have the best ideas.
Finally, be fast. That’s what’s most important to me. We use CUDL.
Tarbuck: You can have a good program, but the only way to know is to compare it. If you’re not connecting, you’re not making an impression. You have to connect, and consistency is important, as is understanding the dynamic inside the dealership. If all you know is the finance office and that finance manager moves onto another store, your volume store is now your zero store.
Goldman: How do you best build a relationship and maintain it?
Phelan: Every dealership is going to be different. I recommend you find a rep who understands or has experience working in a dealership and they speak the language. Going right to the finance manager first is probably not the best idea. You have to be a good diplomat—you can’t ignore the finance person. The key to understand is the culture of the dealership. Understand what you have to offer versus what the captive already provides for us, and that means knowing Audi Finance, Chrysler Finance, etc. Your rep has to be able to explain what benefit remains in doing business with the credit union.
Byrne: I agree, you have to understand the culture. F&I people are important, but what I’m saying is you need to branch out. Most of you, if you have a buyer or a rep in your area, they came from another lending institution. Your pool of candidates is probably like our pool of candidates—it’s circular. You lose your pool of business when they leave the store. The worst thing for a dealer is not knowing what you are doing. I know what BECU is doing. All of us have had this experience where you come in and you want all the business and you buy and you buy and you buy, and then you just fall off. The dealers don’t forget that. All of sudden for some reason that lender shut it off. That’s the quickest way to lose a relationship, because there was no transparency in communicating to us what your goals were.
Tarbuck. It is about communication. You don’t just go in and ask for the business and write that. It’s about communicating what you want. If you’re working together, because you are business partners, that is what makes for an effective relationship for both.
Goldman: What is it about knowing your space?
Tarbuck: It’s about having everything in sync. You have to have communication from the get-go about what your expectations are. And the dealer might say, “What do you have that I’m not already getting?’ And you have to say ‘You will see me as often as possible, I will work with your finance people…”
Know your competition and what they are doing. Talk to your finance managers and find out how they feel about your competition. This is not an instant process, it’s a long-term process. If you manage the portfolio and the basic metrics for each, communicate those to the dealer. You’ve got to get decisions back quickly and fund quickly, and if there are any delays, track those down and keep them limited.
Goldman: Is there space to compete with the captives?
Phelan: There is a lot of competition in the market. We’re all familiar with 0.0 financing. No one is going to compete with that. But there are other products where you can compete. That 0.0 is designed to help sell (certain) cars. Other cars are being sold, as well. There is certified pre-owned, and you should look at that and other used inventory that the manufacturer doesn’t push. Don’t go after the captives; you’re wasting your time.
Goldman: Money talks: how does the compensation to the dealer matter and what do you recommend?
Byrne: Everyone here is familiar with four initials: CFPB. I think we’re all going to go to flats, but again, own that niche. We don’t see people doing the price gouging with rates like we used to, and we were just as guilty. We’re not seeing that anymore, everything is about flat. The captives don’t do 0% for very long. We’re seeing it now because it’s a year-end push.
Phelan: All dealerships are looking at this right now. Nobody seems to have an answer. All the captives are trying to recreate the wheel, and they are all in fear of the CFPB so they don’t want to be first to do something drastic. Flats are a part of the CUDL, that’s what you do. I do agree with the idea if flats could be a bit more aggressive it could be effective at times. What are you willing to do? Once you make that investment it will pay dividends for you, I assure you. From a dealer perspective we have condensed profits on new cars and used cars. The opportunities for us are in financing specifically. We even lose money and look to make it up in finance; you play a big role in that.
Byrne: There is a flip side: what is the credit union’s role. Educate your member. Arm them with a preapproval. Take the fear out of the experience. The biggest problem in this industry is there are a few bad apples and the whole industry takes the hit for it. This is a lucrative industry and it has had tough times; it always comes back to integrity and relationships and trust.
Phelan: There is something I never really understood. We have this captive that when we send them a client we know they are going to have 60 to 72 touches over that loan. The fear is if we send them to the credit union that we will never see them again. Why don’t you take it to the next level and help that dealer to make the next sale? There are a lot of dealers out there who would love to work with you. Dealers have to deal with something compeletly new these days, and that is dealer brand loyalty. It’s not an Audi, it’s a MIello Audi. The portfolio is given back to us by the captives so we can mine that portfolio and generate sales. I wouldn’t be surprised in the future if the manufacturer creates a dealer brand loyalty program.
Goldman: What about ancillary products such as gap and extended warranties?
Byrne: This is a really bad one to discuss. I truly believe that is our customer. I believe I’m in the business of selling cars and you are in the business of lending money. I don’t think there is any confusion. I think we’re in the business of selling extended warranties, you are in the business of lending money.
Our margins have gone to almost nothing. Right now as a dealer if you make 2% of gross sales at the end of the month you are in the upper end of the scale.
I had a deal about a year ago with a customer we sent to a local credit union through the CUDL system, and they were approved, and they bought an extended warranty and gap through us. Their credit union told them how much cheaper they could get that through the credit union. What did that make us? The untruthful, bad car guy. We had taken a loss on the front end of that deal in order to make our money on the back-end. When that customer came in and cancelled everything, that made them almost a $4,000 losing car deal for me. At end of day something I would never have believed would have happened.
We’re in a partnership; is that how you treat someone, to throw them under the bus? That credit union wrote us a check for the money we lost. How much money can you really make on those kinds of sales compared to the overall relationship? You’re spiffing that person at the branch $25 for that warranty sale–was that 25 bucks worth a $25-million portfolio at the end of the day?
Tarbuck: There is a provision in your CUDL contract that you will not undercut your dealer on those products.
Phelan: Your branches can cost you a lot of business. One loose cannon at the branch can be impactful, and it can be hard to recover from that. I’ve been down that path more than once.