Credit Union Car Buying Services – Pros & Cons

Car Shopping: Credit Union Members Do It

That’s exceedingly obvious. Of course members shop for their cars! Only, where? If they’re anything like 95% of people, they go online. To car buying websites.

And do those car buying services direct them to your credit union for loans? That’s a hard no.

So, wouldn’t it make sense for your credit union to be the place your members go to shop for a car? And, since they’re already in the neighborhood, a loan couldn’t hurt.

Car buying services can help you grow loans and ancillary products at your credit union. If you run the program using best practices.

Your service can also sit stagnant, living as an unused link on your website. It doesn’t help you much like that.

Worse, your car buying service can be successful, but the processes surrounding it are unclear, permitting it to create headaches for your staff. That helps exactly no one.

So, let’s look at the Pros and Cons of Car Buying Services at your credit union.

We’ll begin with the Pros. Then, we’ll present and explain the potential Cons. At the end, we will share resources to help you avoid the negatives while boosting the positives. And, we’ll summarize it all so you can decide if having a car buying service is a helpful strategy for your credit union.

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Credit Union Pros

Keeps members close

Your members go where they’re comfortable. Sites that existed before the turn of the millennium fit the mark. Today, these car buying resources are commercialized and linked to direct lenders, ie. not you.

These online competitors, because that’s what they are, capture your members’ loans before you even know they’re in the market. Plus, you may be losing loans to local dealer “flipping”.

Offering a car buying service can help address both of these leaks in your lending effort. A car buying site that fulfills members’ shopping needs encourages them to stick around.

Plus, a “No Flipping” guarantee (which some car buying services offer) reduces the chance of lost loans.

Those members remain close members, this time with an auto loan.

Alerts when members are in market

Would you be interested in knowing when your members wanted a loan? Think you could do something useful with that information?

Thought so. That’s what a car buying service offers.

All platforms have a contact form, which the member fills out. This goes to your credit union and typically one or more dealers/brokers to help in their car search.

They do the car stuff. You reach out for the loan stuff.

Getting alerts increases your credit union’s chance to add that loan to your portfolio.

Aids in ancillary product revenues

Things like Payment Protection, GAP, Depreciation Coverage, and VSC are more than sources of revenue. For some members, they can be financial lifesavers.

By reaching out to members while they’re in-market, you can begin the conversation to see which of these protections make sense for them.

Plus, you’d be delivering them at a significant cost savings over comparable dealer plans.

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Member Perks drives loans

With all the established car buying services online, why would your members use yours?

What if your car buying service could provide a free extended warranty? Or a marketing allowance to reduce or eliminate your discounting costs? Bring on the added-value!

Credit unions can work with their car buying service provider (not all offer, so inquire during due diligence process) to provide members warranty “peace-of-mind” or perhaps discounted rates. Talk about massive perceived value!

Based on our experience, credit unions can see a lift of between 40% to 300% (that’s not a typo) in leads, applications, and booked loans.

Trade-in or Cash offer

Knowing what your car is worth is old hat. Having an exact dollar amount your car will bring? Now that’s cool.

It’s a new technology that some car buying services offer. How does it work? Pretty easily:

Your members enter their license plate or VIN, answer a few questions, and…that’s it. They’ll get an offer on their vehicle, valid towards a trade-in or as a cash buy.

For credit unions, it’s the “missing piece” of the puzzle. When the member knows what they can get for their car, it makes choosing a new one easier and loan qualification more precise.

Your Preferred Dealers +

Your credit union already has it’s trusted dealer partners. Why not invite them to your car buying service? While not all car-buying services offer this service, it can substantially expand your members choices while increasing the “digital reach” of your credit union’s services.

Member Pros

Save time searching

Think back on how you used to buy a car. Maybe you saw a cool new release in a TV commercial, or read up on it in a car magazine. Then you’d stop by a dealer, maybe with an appointment, perhaps just walking in.

And if that was the car you wanted? Time to visit a number of dealers to get the haggling going!

Things have slightly changed.

Nowadays, you’ve got info on every possible car at your fingertips. Anytime. Anywhere. Find one you like? Build it in a few minutes, then match to actual cars on nearby dealer lots.

Already did the test drives and don’t want to go back to the dealer? That’s ok now, too! Most will deliver the car.

They’ll even help complete some or all of the purchase online, a capability more than 70% of buyers want.

And you know that financing can be done online.

In a world where time is everyone’s most precious commodity, the modern process saves massive amounts of it. Empowering your members do it all on their schedule is awfully considerate of you!

Save money (Get Perks!)

Will using a car buying service always get your members the lowest price? No. There’s too many variables to make that kind of guarantee.

Wait, I thought this was the Pros section? Stick with me.

Your car buying service will help members know if they are getting a good deal. What they do with that information is their decision. Some may use it as a starting point for their deal-making (ie. haggling).

Another member might just see the price and agree that, yes, it’s a good deal. They see how much others paid and decide they’re in the ballpark. With inflated pricing on both new and used, this is a valuable service.

At the end of the day, using a car buying service offers the best chance of getting a good price. Knowledge is power

Different services share a range of pricing data. At the very least, car buying services will offer a discount off MSRP. That’s ok, but not too helpful. Some car buying services will also provide:

• Guaranteed no-haggle pricing
• Special member discounts on selected cars
• Exclusive manufacturer incentives

Trade-in or Cash offer

We previously highlighted the “Pros” of this system for your credit union. It’s also a huge perk for your members. Sure, they save time. That’s valuable, of course.

It also helps them fill in the blanks. You know, the questions which matter for your lending department:

• Will the trade-in value be enough to pay off their existing loan?
• Will it cover a down payment?
  • This helps members decide if the adjusted monthly payment fits their budget.

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Benefits from Car Buying Services incentives

Remember that free warranty? or a marketing allowance? The value you receive is the value your members receive. Unless you’re keeping it all for yourself, which, of course you’re not. It’s about sharing savings with members!

Incentives like free warranty and rate buy downs put dollars back in members’ pockets and can reduce their payments over the entire loan term. Of course, a warranty can potentially save them thousands in the event of a breakdown. Making a difference long-term.

Credit Union Cons

Members already use car buying websites. Why should they visit yours?

This is the biggest challenge for all our credit union clients. And the answer comes from your Marketing team.

It’s also at the root of the biggest downside of the program…

Requires increased resources

The demands for time, energy, and expertise goes across your Marketing and Lending departments. Both need to be on board and engaged for the car buying service to be successful.

And it’s not a one-and-done thing, either. The commitment is ongoing.

Relax, we’re all about processes. Once they’re in place, it gets a lot easier to run the program in “auto-pilot”.

To start, let’s do one really important thing: Dump the silos!

In our time working with credit unions, the most successful ones aligned their leadership, Marketing, and Lending teams towards a shared goal.

When everyone’s working together and on the same page, it’s a lot easier to create an engaging and cohesive member-facing strategy.

Marketing & Communication

Your credit union will need to develop a marketing strategy to:

• Alert members that you offer a service and,
• How the service can benefit them

This is accomplished using prominent website placement, landing pages, plus e-mail and social media campaigns. Direct mail is an option, though it just doesn’t get the engagement of digital solutions. Plus, it costs a lot of money. E-mail is free.

On that note, are you texting members? Because there’s enormous potential in this medium. *ding* Be honest, you checked that text before continuing on reading.

If your credit union is not prepared to dedicate marketing efforts, your car buying service may feel like a burden.

Contact/follow up

Great, marketing’s on board and ready to go! What are you going to do with all those members using the service?

You will need a follow-up process to reach out to those members. That way, your staff can begin the conversation and drive them towards your lending solution. Normal outreach involves automatic e-mails (build it once and tweak as you go), phone calls, and sometimes text messaging.

Without buy-in and participation from Marketing and your follow-up team, your car buying service will likely fail to meet your goals.

Member Flow Tracking

If a tree falls and no one is there to hear it, did it make a sound? Similarly, if members use your car buying service and there’s no tracking, is it really advancing your goals?

Your team needs accurate and current data to reach out to members. However, most car buying services are not integrated with your LOS. Flags, notes, and other tools allow Lending staff to see where the pre-approval, unfunded loan, and booked loan originated.

Put simply, you need a process to match Leads with Loan Applications and Booked Loans.

Also, it’s about using the data now available to you. It’s great knowing a member put in a pre-approval. And then they looked at a $26,000 Toyota Camry LE in blue. Finally, they ran a trade-in quote and came up with $12,000 for their current vehicle.

Do you think you could be more effective in your efforts to book that loan, any ancillary services, and truly serve that member?

Costs

Currently, there are two credit union business models on pricing: Cost and no-cost. The no-cost method, used by traditional car-buying services, transfers all costs to dealers who purchase “leads” and will likely also reach out to members to try to make a sale. The cost method, used by some CU industry car buying service provides, requires a monthly subscription, the amount which is generally determined by the credit union’s asset size. Leads generated by these system may or may not be marketed to other dealers depending on the company.

Activity Reporting

Car buying services provide ample data on their own usage. At minimum, you should have access to Unique Visitors, Leads (how many members submitted an interest form), and Sales (at network dealers).

This can inform your marketing strategy and provide a new channel for refinancing. Simply reach out to members who bought using your service, but didn’t finance at your credit union!

Member Cons

Dealer communication

At its core, a car buying service is a lead generation platform for dealers. That means they’re interested in what comes through. It also means they’re going to reach out to your members. Most will send an e-mail, some will also call.

Hey, isn’t that essentially what you’re doing?

Most dealer contacts are respectful. They’re not aiming to blow up your members’ phones. Unfortunately, some salespeople may be overly-enthusiastic and become an annoyance for members.

It’s important for your car buying service to have a process for requesting retraining or action taken against dealers which abuse the system.

The Price is the Price (May not permit haggling)

This is my best and final offer.

Over 70% of consumers are good with that situation. Most don’t enjoy the negotiation process. A fair and set price is fine (especially since it’s the same one they saw in your car buying service).

However, some members enjoy “playing the game”. If they started on the car buying service, this may become a challenge. Dealers often do not allow negotiating beyond program pricing.

Of course, there’s nothing stopping members from using your service as a tool to bring to other (unaffiliated) dealers in their area. So long as you’re getting the loan, does it really matter to you?

Summary

A car buying service can add to your member experience while helping grow your auto lending channel. Or…it can be a source of frustration.

We tried to show you both sides so you’re fully prepared with what could happen. Then, it’s about working in that reality to achieve the results your vendors keep saying you should see.

For more information on Car Buying Services, take a look at our library of article content.

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Image credits: Yes No Triangles by Pete Linforth. Woman on headset (flipped) by Tumisu. Tablet reports by Pexels. Phone and computer by Firmbee. All from Pixabay. Phone and cash by Karolina Grabowska from Pexels.