A lively discussion broke out on a Facebook group I belong to for F&I pros. A member had posted about a situation she faced with a local credit union. She had sold a service contract and GAP to a customer who financed directly with his credit union. But the CU rep informed the F&I manager the next day that the products she sold the customer would not be funded because the CU was “looking out for the best interest of the customer” and could offer the same products for a cheaper price.
“What they failed to tell the customer is that their product doesn’t cover much of anything,” the F&I pro charged. So what were her options?
Quoting Mike Schenk, an executive with the Credit Union National Association, Automotive News reported in March that CUs accounted for 36.2% of total auto loans outstanding last year. In total, credit unions had about $72 billion and $128 billion in new- and used-vehicle loans outstanding, up 13% and 10%, respectively, from the year prior. Clearly, CU’s are taking a bigger chunk of the business these days. So, again, what’s an F&I pro to do?
First, we must recognize why customers are so loyal to CUs. Convenience is one reason, as some members like the fact that their CU can deduct their payment right out of their paycheck. They also like the idea of one-stop shopping.
Members also like the familiarity they have with CU employees, and they’re more than willing to take their advice on things such as F&I products — no matter how unqualified it might be. Bottom line, for shoppers who don’t want to do the leg work, this is a great option. Plus, the CU already has their financial data, which means they’re one step closer to sealing the deal.
A savvy shopper, however, may discover that CUs don’t always offer the best programs. They may offer a low rate, but the terms of the overall credit offer, including limits on loan length as well as cash down and mileage requirements, might not be as favorable as what we can get for the customer.
But nothing describes the power credit unions have more than the situation my Facebook friend described. Not only does refusing to finance dealer add-ons cast doubt in the customer’s mind about the value of our products, it hurts our credibility. But hey, this is a highly competitive environment, so you can’t blame CUs for going after the business.
But we do have an edge. Remember, customers typically don’t read the fine print until there is a problem. And since we write a lot of service contracts, we’re in a better position to help customers on questionable claims. We also know how to work with providers to ensure satisfaction, so we can be the customer’s advocate if they purchase from us.
Don’t get me wrong, CUs do look out for their members. Remember, CUs are not-for-profit institutions that probably view our products as overpriced. So they’ll make every attempt to convert members to their offerings to save them money. What they may not realize is the coverage we offer is superior.
So how do we counter? Well, you first need to identify the differences between your products and theirs, so get yourself a copy of their product brochures, enrollment forms and sales contracts. I’d also suggest going to cunamutual.com to download the LOANLINER contract most CUs use.
Just be sure not to use what you’ve uncovered to criticize a customer’s credit union. I’ve done it and paid the price. Instead, underscore how it might be beneficial to leave the CU source open for other credit needs. Hey, no matter how financially stable a person is, everyone has credit limits.
My friend Tom Wilson is the former F&I director for Escanaba, Mich.-based Riverside Auto Group, F&I and Showroom’s 2010 F&I Dealer of the Year. Soon after joining the operation in 2006, he realized the local CUs were getting his customers to refinance their loans shortly after leaving the F&I office. Instead of fighting them, he decided to educate them on the products his group offered.
Change didn’t happen immediately. But the CUs eventually allowed Wilson’s F&I offices to write contracts for their members and sell them product without a fight. Charge-backs dropped to unheard of levels, customer satisfaction rose and about 90% of the operation’s back-end profits were coming from product sales since his operation was now operating on the CU flats.
You’re not going to win them all, but you’ll give yourself a chance by arming yourself with the facts and the right attitude. Good luck and keep closing.