Growing Direct Auto Loans: Does Your Credit Union Have the Missing Link?

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(Last Updated On: September 21, 2021)

Congratulations, you accomplished the digital auto lending challenge! When the effects of COVID-19 changed the world, your credit union jumped into action.

Overnight, the focus became reaching your members at home. No matter what device they chose to satiate that moment of stress or boredom. And your system had to be both easy-to-use and seamless across all those experiences.

If you already had a digital transformation effort underway, this was a great opportunity to implement “iterative development” on-the-fly. Out of necessity, progress came quick, with bursts of new capabilities to help serve your members (and address their new challenges).

Suddenly, contactless was essential, and you did everything possible to make it happen. How did your members respond? Were you able to fulfill their needs? And beyond that, could you do more to be their best financial resources, while driving profitability and loan business?

This article aims to answer those questions. Plus, we’ll “iterate” through easy-to-implement recommendations to help you increase direct auto loans, while providing members with the financial empowerment and personal service they expect.

And of course, ensuring your credit union remains strong and relevant through the pandemic and long into the future.

More Time Car Shopping Online. In Less Time.

Analog Stopwatch and Running Track
Faster and faster.

Even before the pandemic, car shoppers were already comfortable with using online resources. We’ve been providing credit unions with digital car buying services since 2013! But, to paraphrase our favorite Reading Rainbow host, “don’t take our word for it.”

Over 80% of shoppers used a 3rd party car buying website (Kelly Blue Book, Edmunds, Cars.com, AutoTrader, NADA Guides) to view pricing and dealer inventories. That data is from the 2019 Car Buyers Journey from Cox Automotive, and they know car buying.

Today, 2019 seems like the distant past. It’s been, what, 34 years? As if to confirm our personal feelings, many stats changed similarly. Today, almost 100% of shoppers start their search online.

The process of buying a car also took longer in those long-ago times. The typical car buying journey in 2019 went on for 96 days. Now, it’s dropped by about a week, to 89 days. Even more interesting is where people go to do that research:

  • 65% of shoppers start on 3rd party car buying websites
  • 58% complete their research while using that platform

You may be thinking, “but you just said that in 2019 over 80% of shoppers used those sites, and now it’s down”? Great observation. Here’s the important qualifier:

More of your members are starting their car buying journey on these 3rd party websites. Why the distinction? Because they’re great sites to finish a car buying journey, as well. We’ll get to that soon. Keep it in mind, as it is an essential part of that missing link.

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Contactless is King! Long Live…In-Person Vehicle Purchasing? For now.

The time of contactless, fully digital car buying is nigh! Or something. To be clear, the pandemic raised interest in this concept, by a lot. Last year, 57% of car buyers conducted most of their vehicle purchase online

Nearly 10% even opted for contactless home delivery from their local dealership. That’s up from 1% a year earlier.

Sounds like the in-person experience is fading away! All hail the digital future!

Not so fast.

Although an overwhelming majority of people prefer to do their research online, most still want to visit a dealer in person. Until we can test drive a car from our phones, this is going to be an essential part of car buying.

Though not sure I want my phone to simulate banging my head into the door sill. Good thing I’m short and that rarely happens. Although, if that means also getting to experience the thrill of silent acceleration in a Tesla…

Of course, it is projected that as consumers become more comfortable with a fully digital experience, these percentages will grow. A contributing factor will be overnight at-home test drives and easy 7-day vehicle return guarantees. Some dealers already have such offers.

The 80/20 Financing Conundrum

Eighty Percent on Chalkboard

Car buying is one component, but it’s not what interests your credit union. At least, not directly. For that, we look towards the financing. Since the start of the pandemic, you’ve worked hard to ensure continuity and improve access to this funding source.

Now, you may offer competitive rates (across a range of credit tiers), with a buttery-smooth online application process (ask us to share a client example), but there’s still something missing!

How is that possible? Haven’t you done everything? Dots on ‘i’s and all that? Keep in mind, your credit union helps members achieve their dreams. When they dream of a new car, it’s the shiny metal they see, not the financing. So are you even part of it?

If a member has confidence in their creditworthiness, they may not even address financing until they have decided upon a car to purchase. It can be much later in the journey when most members get serious and begin to look at their financing options.

Over 80% of your members start their car buying journey with the rolling wonder. Thus, you’re not part of the picture…yet. And it’s possible you won’t even enter their thoughts, because to them, you’re the money part, not the car part.

In the past (Read: Even way before COVID), shoppers visited the dealer to both shop and finance. Dealers then and now are happy to oblige by building a “purchase/finance package”. It still happens today, but buyers enter the process with more preparation.

What about the near ubiquity of members who are researching cars online? You might not only be too late to the conversation, with one-third of buyers conducting the loan process online, you may never even know they were in-market.

There’s an answer, and it’s the missing link of your direct auto lending process.

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Losing Loans to the Web

Data shows that most of your members are starting their car buying journey online. Nowadays, that often means 3rd party car buying websites, like the ones mentioned previously.

These visits start about 89 days prior to closing, and are a disadvantage to your credit union, and potentially even a risk to your members. Why?

Why? Each of these 3rd party car buying websites are not only connecting people with cars, but also promoting their own partnered financing. Here are some of the institutions earning those loans:

  • Capital One (Kelley Blue Book)
  • Lending Tree (J.D. Power/NADA)
  • Santander Bank

 Did you see your credit union on the list?

These 3rd party car buying sites are designed to guide their visitors through the shopping process, leading to an all-important monthly payment. Then, they’re happy to oblige and help them get approved for financing through their partner.

Here’s how easy it is from Kelley Blue Book:

KBB Loans Page

Seamless. But not ideal for your credit union, nor your members, as we’ll address below.

Remember, all this happened with your credit union in the dark. You cannot know which of your members are searching on these websites (because some always are). Nor can you know if they already purchased and financed through their process (until a refinance promo).

After all that, it’s somehow not the only challenge your auto lending effort is facing. We will also look at threats to loans you already approved. Then we’ll put it all together, because you’re here for that missing link!

Loan Flipping

Remember when loan flipping was a problem? Oh, it’s still an issue? Sorry to hear. It’s actually pretty common, especially if your credit union is focused on promoting direct loans.

After all the time you put into approving a member’s loan application, even including a site draft to make “cash buying” easy, it’s just…nothing. A mystery. A non-booked loan. Short of a conversation with the member, it will sit in limbo in your system until the terms expire.

Once again, there’s always recapture. But surely there’s a better way. Let’s look at what’s happening.

Your credit union promotes auto loans, but leaves the car shopping to your members.

Giving your member “choice”, without any real guidance, leaves them looking at other options. Combining an online process geared towards loan partnerships with dealer staff incentivized to provide their financing “package” and you find yourself not entertaining their loan.

That “choice” also means they are subject to higher-cost ancillary products, possibly not receiving clear explanations on protection options, and an uncertainty of getting the lowest rate.

Give your members real empowerment by providing a robust car buying service to guide them through the entire process.

We Know Car Buying Services. That’s Our Humblebrag.

Yes, we’ve written extensively about car buying services. It’s an area we take pride in researching deeply to help our credit union partners. Over the years, we’ve learned a lot. Primarily because we want to provide the best support on any programs we offer.

Also, because a lot of credit unions implement a car buying service poorly, then assume it just doesn’t work and give up. Or, they are resigned to it being only “ok” and subject it to being “just another service the credit union provides”. That helps no one.

Your members deserve better. And any program your credit union decides to implement should give you the maximum benefit. It consumes time and resources, so why not get the most out of your effort?

A 1st Party Car Buying Service

It’s the missing link in your direct auto loan growth efforts and deserves the same consideration as your application process. Today, your credit union has many options when it comes to choosing a car buying service.

Each has a different focus of benefits, ranging from basic research data and an “indirect lead engine”, to those which match or exceed the traditional 3rd party sites in all areas. The main difference being, of course, that the financing it guides visitors to is yours.

Member Expectations

What do your members expect to find on a car buying service aiming to replace their KBB or Cars.com experience?

  • Full “build my car” system, with all models and options
  • Inclusion of all incentives available
  • Real-time dealer inventory
  • National new and used car availability (unless your members are all concentrated in a limited geographic area)
  • Contactless experience as an option
  • Ability to receive a clear price (and comparison) for the vehicle they want and for the one they have (trade-in)
  • Know what others have paid for similar vehicles in their area

Above & Beyond Delightful Features

Woman Riding Car Toy with Smiling Child
Bringing joy and movement. Isn’t that your goal?

Those are the basics, and all the major 3rd party sites provide them. So to ensure you exceed member expectations, whatever service you choose must, at a minimum, have those features. Beyond that, you can delight members with additional features, including:

  • Member-only discounts for new and used vehicles
  • Guaranteed pricing
  • Seamless connection to your financing
  • No-flipping policy

And what’s most important to your credit union? Knowing your member is in-market. So the service sends an alert after they submit their information to “lock in” pricing or interest. Now, finally, you can start a conversation before the financing step has even begun.

So you might think that it’s just about finding a car buying service, putting it on your site, and watching the loan leads roll in. As kids at one time said, if only!

Promote Well and Promote Often

The 3rd party car buying websites get a lot of regular traffic. Alexa (not the voice assistant, but the web traffic platform) estimates Cars.com is the 313th most popular website in the United States. And to think you’re reading this on the 315th most popular. Ha, if only!

They retain such high ranking because of the value each delivers. For more than a generation, the sites have offered a sense of familiarity for their millions of visitors. Your platform needs to be just as capable, and also become known.

Credit unions are great at promoting their loan rates. Though it does tend to be the “feature” shared most. Dealers don’t hide financing, but they know what drives emotions. Same with the car buying websites. You’re there for the car. The financing is the tool.

Your “Resources” Section is a Dark Closet

Wooden Closet in HDR
Please don’t put your portal in there.

So how does a credit union position their own car buying service? Intuitively, it should be combined with any mention of loan rates or special offers. What we see more often, sadly, is that it is separate from rates, then relegated again to a “resources” section of the website.

It’s objectively hard to find. In practice, the car buying service has been “put away” in a dark closet, never to be seen again. Will a few members track it down? Sure. But was that the original intention? To have a service a couple members will stumble upon?

That’s not serving anyone. And it’s an insult to the team which put so much work into reviewing services until they found the one which was a fit for your institution. Now it’s time to get the most out of your car buying service (and serve your members).

Website Positioning & Outreach

Car Buying Service Website Flow

Ensuring your car buying service is always prominently positioned on your site (plus online banking and your mobile app) is step one. Then you have to promote.

The best venue we’ve found for this is email. Focused messages promoting your service, along with a few of its unique member benefits work well. If you have a special loan discount going on, this kind of outreach is essential.

Can you text your members? A quick text of, “Finding your new car is easier than ever, with your special ABC CU discounts!” With a 98% open rate, that’s going to get eyeballs.

Your social media channels also are ripe for promoting the service regularly. It’s not selling if you share what members get out of it. 

Besides website positioning, there’s also outbound communications in the form of email, texts, and even social media posting. (We share sample social media posts with partners for every season and many holidays. To us, they’re hilarious.)

For you, we’ve put together 10 steps that help you best position your car buying service for loan growth.

Remember, it’s the mission!

Heart Cut Out of Hedge

A car buying service may feel like a nice-to-have add-on for your loan program. However, it is a vital part of the mission! Why?

Because knowing your members are in-market helps you start a conversation early. That lets them learn about your protection products to decide if they are a fit (which is also a vital part of financial empowerment).

Your car buying service can also ensure they get the best rate as well as the best deal. Especially if your platform provides member-only discounts along with free vehicle history data. Knowledge is power, and you giving them the path to it makes you a bit like Q.

But only if you fully embrace that missing link of your direct auto lending program.

We get that indirect is easier, but you know direct is not only more profitable, it is more tied to the credit union mission. Following best practices can help you meet those aggressive loan goals, while helping members get a great deal on the vehicle they want.

Be sure to Subscribe to the Learning Library to get more insights like these. And make sure you download the complimentary “You’re Special to Us” video series to introduce members to your protection products (they’re totally vendor-agnostic)!

Joe Winn - CU Geek

Blogger. Speaker. Part-time Jedi.

Focused on helping your bank or credit union grow in the face of emerging challenges.