Loan Aggregators do Legwork for Dealers

Dealerships are still staggering from the effects of the economic downturn and the retail credit crunch. But as bad as it has been, the impact would have been more severe for many stores if not for loan aggregators, which help dealerships arrange retail financing for their customers.

Aggregators are a relatively new phenomenon. They combine technology and relationship-building with lenders so that dealerships no longer need to do all of the legwork to get customers financed.

GrooveCar
Headquarters: Hauppauge, N.Y.
President: David Jacobson, 47
Business model: Credit union aggregator
Loan transactions per month: 4,000
Chief competitors: Chase, Citizens Bank, TD Bank, Bank of America

GrooveCar

David Jacobson, GrooveCar: "We've managed our growth. We didn't want to spread ourselves too thin."

With the growth of credit unions in indirect auto financing and the big drop in leasing by captives, 2009 was the best year ever for GrooveCar, which helps connect dealers with credit unions.

Part of it was fortunate timing: GrooveCar started offering balloon leases just as Jeep stopped leasing.

"We got letters from Jeep dealers saying if we hadn't offered a balloon lease product, they would have gone out of business," said GrooveCar President David Jacobson.

The Hauppauge, N.Y., company started 11 years ago, working only with dealers on Long Island. Now it works with 320 dealers and 30 credit unions and recently has expanded into Michigan, New Jersey and Pennsylvania. An agreement in the works with a California representative would bring GrooveCar to the West Coast.

"We've managed our growth," said Jacobson, 47, a former partner in a multifranchise dealership. "We didn't want to spread ourselves too thin."

In the next year, he plans to add 100 credit unions and 1,000 dealerships.

Following credit unions' traditional path, 70 percent of the retail loans that GrooveCar handles are for used vehicles. But when the company started handling leases four years ago, the mix changed. Today, 60 percent of GrooveCar's combined loans and leases are for used vehicles.

About 35 percent of GrooveCar's business is leasing -- a change for credit unions -- down from its peak of 40 percent leasing last year. The leases are backed by Fusion Auto Finance, of Hurst, Texas, which sells the off-lease vehicles online and at a facility on Long Island. About 60 percent are wholesaled.

GrooveCar handles 4,000 credit applications a month and funded $700 million in loans and leases in 2009. Decisions are returned instantly through AppTrac -- the company's Web-based, automated system -- based on a scoring sheet. If more information is needed or an application is rejected, AppTrac will return the application with questions or send it to another lender within 20 minutes.

Rejection rates range from 15 percent for some employee-based credit unions to 75 percent for credit unions in some low-income areas.

Dealer cost depends on the store's size and market. The dealer package includes software and hardware, posting of dealer inventory on GrooveCar.com, leads from the GrooveCar call center and Web site, and listing in GrooveCar marketing materials. Credit unions pay only a minimal fee for out-of-state customers.

Jacobson said his biggest challenge is helping credit unions keep good spreads while remaining profitable and competitive. Banks are coming back into the market, but they're still looking for A-plus paper. GrooveCar is going after B-plus.

Jacobson thinks his plan is starting to work. Teachers Federal Credit Union became the second-biggest auto lender on Long Island last year.

Said Jacobson: "We're making inroads in New Jersey and Pennsylvania, and we will have a huge impact in California."

-- Joan Mooney