Dealers' Choice
By David Jacobson
Jan/Feb 2007 - The age-old question confronting lenders—be they credit unions, banks, consumer finance companies, thrifts, captives or third-party providers—is why automobile dealers select one lender over another.
Learning the answer to this question is no easy task and, depending on who you ask, you may receive a different answer.
Since we deal primarily with credit unions as a financial intermediary, this raises the question of how they can distinguish themselves to truly stand out in the crowd.
Technological advances
In times past, we could offer a number of discernible differentiators as an easy answer. However, the new technology available in the marketplace today has truly leveled the playing fields, particularly as it impacts response time. But at the same time, this technology has made it easier for dealers to simultaneously submit applications to multiple lenders. (Interfaces such as DealerTrack and RouteOne allow dealers to submit applications to multiple financial institutions.) Unfortunately, only one financial institution will get the loan. So back to the initial question: How does a credit union stand out among the crowd?
To find the answer, the first thing to do is to find out what dealers have to say. To get their take on things, we recently canvassed more than 200 auto dealerships in the metro New York region to determine the top five reasons why one lender bests another. Here’s what they said: Perhaps to no one’s surprise, the number one reason an auto dealer selects one lender over another is rate; however, new car dealers are more concerned than used car (aka pre-owned) dealers, who typically see more credit-challenged borrowers. Second, is the actual time it takes to submit an application and receive a final disposition from the lender. The “advance”—the dollar amount a lender is willing to commit on a particular vehicle—ranked third.
Further down the list but equally important to dealers are fewer stipulations, which rated fourth, followed by the quality of the relationship and ease of contacting and communicating with the lender.
The survey underscored that dealers are less likely to send applications to lenders who consistently ask for stipulations, such as pay stubs to support income claims or copy of a deed to prove home ownership, when other lenders do not.
Quantity and quality
Overall, the respondents felt that the relationship between the dealer finance manager and credit union analyst plays an important role in the overall quantity and quality of the applications submitted. In fact, most lending institutions rotate analysts to preclude any possible conflict of interest with dealer finance and insurance managers. The study reinforced that dealers are apt to submit applications to those lenders who respond quickly to questions as well as those who can be contacted by telephone to discuss a particular application.
Understandably, the results showed that used car dealers were more concerned about the advance and fewer stips (stipulation) than turnaround time, which relates to credit quality. A dealer will wait longer for a credit decision on a poor credit applicant. Why? Because if there is less competition for the lender, he automatically wins.
A credit union must have an experienced team to maintain those all-important relationships and should never underestimate the power of communication. Constant awareness of the credit union is essential. In many cases, the credit union may offer the better rates, but not the best terms. In other cases, the financial institution with the best rates and terms may fly under the dealer’s radar screen. However, motivating dealership F&I managers to do business with your credit union plays as key a role as do incentives.
David Jacobson is founder and president of GrooveCar Inc., a Long Island-based financial intermediary that has been serving credit unions since 2000. Additional information can be found at www.groovecar.com.
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