By Ray Birch
TEMPE, Ariz.–While partnering with Costco Auto might seem like an indirect lending relationship, one credit union points out it is, in fact, a nice boost to the direct side of it business.
The relationship also creates fewer of the one-service, limited-time members created by indirect loans, according to TruWest Credit Union.
TruWest has begun offering a new auto buying program through Costco Auto, which helps members purchase new and pre-owned certified vehicles at discounted prices.
“The members really like it, and no, they don’t have to buy in bulk,” joked Mike Waldron, director of marketing at the $1.4-billion TruWest.
Potential buyers can shop online for cars through a link at truwest.org. They can also apply for an auto loan and get preapproved, which saves time before going to the dealership. Buyers then can visit a Costco-approved dealership to see the car they are interested in. The service is free to use and online calculators provide details around the loan amount based on the price of the car and down payment.
Members who finance the purchase of a car through TruWest and complete a survey within 30 days receive a $50 Costco Shop Card. If CU members are not members of Costco but purchase a car through the program and finance the purchase through TruWest along with completing the survey, they receive a one-year complimentary paid Costco Gold membership.
‘Attractive’ Opportunity
“What makes this so attractive for us is that we gain a new avenue for auto loans,” said Waldron. “But this is not indirect lending. With indirect, the car buyer really does not really know or care about where the loan is coming from until they think about that first payment. With Costco Auto, they know the program is offered through TruWest and they know they are getting the loan with us.”
Waldron added bringing in more auto loans via the Costco channel avoids some of the longer-term issues credit unions experience when relying too heavily on indirect lending, where members “join” just for the car loan and during the term of the loan develop few, if any, other relationships.
Waldron said the partnership has the potential be a step better than indirect—as it drives volume and deeper relationships.
A Good Fit
Costco Auto is also a good fit for credit unions, Waldron believes, because Costco, like a CU, treats their members well, he said.
“We first learned a lot about Costco Auto and the experience they provide to their members,” said Waldron. “They focus a great deal on critiquing themselves. Through surveys they’ve had very positive responses.”
And part of the member experience is the interaction with the dealerships, noted Waldron.
“They are very particular about the dealers they bring on board and about the experience their members will receive from those dealerships,” explained Waldron, who said Costco-approved dealerships are not going to try to steer members away to other financing options.
‘Transparent Process’
Rick Borg, GM for Costco Auto, emphasized the Costco process is very simple and pricing is “very transparent.”
“You select your vehicle, the site sends you to the closest dealership, and they have the Costco price waiting for you there,” said Borg. “There is no haggling over price.”
Borg estimated average car buyer saves more than $1,200 over a deal they would negotiate on their own.
“That figure is backed up by our annual surveys. And that is a needed savings today,” said Borg. “The average price of a new vehicle is over $37,000.”
Costco Auto has relationships with 10 credit unions across the nation. Last year the program
completed 690,000 transactions, up from 2019 despite the pandemic year, Borg noted.
Where to Begin
Waldron suggested if credit unions are interested in partnering with Costco Auto, they should first look at their credit card portfolio.
“That’s what tipped us off,” said Waldron. “We saw that in our Visa portfolio that Costco purchases were showing up significantly. That told us our members were using Costco and like Costco. You think about the great discounts Costco offers, and so we reached out to them about Costco Auto.”
Still Early, But…
Waldron said it is too soon to tell how much volume the credit union will do through Costco Auto this year, but he said the advertising TruWest has delivered for the service has been received well by members.
“The initial advertising for our Costco relationship, the emails and banner, have outperformed our typical advertising through those channels,” Waldron said. “Our members like it.”