3 Fundamentals to Grow Indirect Auto Lending in Any Market
January 25, 2022
To effectively grow lending in today’s auto marketplace, lenders are challenged to overcome several key factors, from the ongoing effects of COVID-19 and diminished vehicle inventory due to microchip shortages, and rising used car prices as a result of consumer demand.
How can credit unions continue to grow and maintain an indirect auto loan program in a market where new records are broken every month and generation-defining world events create new retail challenges for dealerships and lenders?
Strategic Link partner Origence knows. It’s all about “fundamentals.”
No matter the economic or social influences, these three fundamentals are key to a successful indirect auto loan program:
- Financial Fundamentals
First and foremost, your base rates must be reasonable to effectively balance risk and yield — and that means pricing for all prime loans, not just “A paper.” Your dealer comp and advance levels must also be reasonable. That doesn’t mean you have to beat every other lender in all categories, but you need to be rock-solid overall.Consistency is also key. Credit unions that offer a consistent lending experience will not only maintain healthy partnerships with dealers but will position themselves for future success and the opportunity to expand their market presence. Origence’s auto lending platform, for example, gives credit unions the ability to effectively control their underwriting and their rates.
- Efficiency Fundamentals
Inefficient decisioning and funding can quickly sour a strong dealer-lender relationship. Dealerships are under pressure to close deals quickly while buyers are on their lot.Credit unions as a whole use automated decisioning for approximately 25% of auto loan applications. Is 100% automation necessary to grow loans and effectively compete? No. Credit unions that use automated decisioning for 60% of loan applications would increase auto loans and market share without increasing risk. Origence recommends two strategies to quickly reach that number: 1. automate easy approvals, and 2. hard pass declines and save the loan officer judgment calls for nonconforming loans.
- Flexibility Fundamentals
Credit unions come in all shapes and sizes and serve a wide variety of markets. Auto dealerships also serve unique markets, and their organizational structure and operations reflect that. To be a successful lending partner, credit unions must cater to these needs like they do when serving their members.Credit unions should be carefully building their indirect loan portfolios, focusing on key measures like aggregate risk, yield, and concentration. Credit unions that take this approach and work with their dealer partners to ensure they are providing the right kind of paper for a well-balanced portfolio are in a better position to stretch to meet the dealer’s needs when asked.