By Mariam Janan, CEO/Founder, CU Acceptance
The automotive financing landscape is increasingly dominated by captives, which leverage generous incentives, rebates, and sub-vented rates to secure both the new and used car markets. These captives, backed by billions of dollars and an undeniable motive to dominate, integrate financing options seamlessly into the car-buying process, making it challenging for smaller, non-captive lenders to compete. So, how can credit unions effectively position themselves in a market where captives appear unbeatable?
While captives rely heavily on automation coupled with decisioning tools to process loans faster and at scale, credit unions often find themselves playing catch-up in these areas. These technologies certainly provide the advantages of processing data efficiently and improving decision speed. However, they also come with limitations. Automation excels at handling predictable, structured scenarios but falters when faced with nuance and complexity. This is precisely where credit unions can differentiate themselves: by capitalizing on what captives often lack: the human touch.
To remain competitive, credit unions must focus on what their client-dealers truly want. Dealers often express frustration with the “square box” approach of automated decisioning tools, as many loans fail to meet the rigid criteria of these systems. Credit unions have an opportunity to fill this gap by embracing relationship lending, an approach that prioritizes personalized service and flexibility.
Credit unions are already well-known for their community-oriented approach, and this reputation can be leveraged to build stronger partnerships with dealerships. While automated systems may reject loans that don’t fit their pre-defined parameters, credit unions can take the extra time to evaluate these applications on a case-by-case basis. By dedicating more attention to these borderline cases, credit unions can capture loans that captives overlook while simultaneously fostering trust and loyalty among dealers.
Relationship lending also allows credit unions to gather “soft information” that technology cannot. Regular, personal interactions with dealers enable credit unions to gain insights into their unique needs, preferences and challenges. This deeper understanding reduces informational asymmetries and allows credit unions to make more informed lending decisions. For example, loans that might initially seem too risky on paper could, upon closer review, represent lucrative opportunities for both the lender and the dealer. Even if these relationship-driven loans only produce 15-20% of a credit union’s portfolio, the increased ROI and strengthened dealer partnership can be transformative.
Companies like Apple, Amazon and Spanx have thrived by putting their clients’ needs first. Similarly, credit unions should tailor their services to meet the specific needs of their dealer partners. Why should a dealer choose a credit union over the hundreds of prime financing options they have? The answer lies in delivering something others can’t: a personal, relationship-based approach to lending.
The ideal model for credit unions is a hybrid one, combining the speed and efficiency of automated decisioning with the creativity, intuition and empathy of human interaction. By leveraging technology to handle standard cases and reserving human expertise for complex scenarios, credit unions can strike a balance that not only competes with captives but also sets them apart.
In conclusion, credit unions may not have the financial resources captives possess, but they have a unique strength: their ability to build meaningful relationships. By focusing on relationship lending and addressing the gaps left by captives’ automated processes, credit unions can thrive in a highly competitive market, fostering long-term dealer loyalty and financial success.
Mariam can be reached at mariamjanan@cuacceptance.com.