Credit unions collectively remained America’s No. 1 auto finance source in 2018, accounting for 20.1% of all new-car originations and 26.6% of all used-car deals. To learn how and why CUs are gaining market share, the credit space they occupy, and how dealers and F&I professionals stand to benefit, F&I met with Evan Etheridge, senior vice president of product management for CU Direct.
Evan, what is driving the market-share gain for credit unions? Dealers. Dealers are increasingly gravitating toward credit unions. Credit unions are profitable partners, and they’re reliable. They’re local. We all know dealers love making connections in the community.
Should dealers be concerned that more customers are using CUs to finance themselves? Looking at the statistics, we see that 66% — fully two-thirds of auto applications — are dealers using credit unions to serve the general population.
Is that dealer share increasing? It is. Dealers are helping credit unions grow. And the partnerships are helping dealers sell more cars. Credit unions on our CUDL lending platform experienced 7.7% growth in 2018, and as an aggregate are the nation’s top auto lender.
Does the dealer compromise on term flexibility or F&I production when they use the CU? No, I don’t think that is the case. The dealer wants to treat the customer fairly but also wants to maximize profits for the dealership. If credit unions didn’t provide those opportunities, they would not be in that dealership.
Are their “superdealers” in the credit union world? Absolutely. Credit unions have become the core finance source for some of the largest franchised dealer groups in the country. We see a large percentage of these dealer groups using our lending platform to finance car purchases with credit unions. After the captives, they use credit unions as their primary lender.
Is the CU a better fit for big groups and volume dealers? Actually, I think credit unions by their nature are a great partner for any dealership. Even the right-quality independent dealers make good partners.
And they’re playing specifically in the prime space, correct? Definitely. Credit unions are not subprime or even nonprime lenders. The average credit score is over 700.
Do you consider the captive a competitor? No, I don’t think so. We don’t look at credit unions as a replacement for dealer captives.
Are CUs not advancing in the leasing space? There is a small percentage of credit unions that are into leasing. But they face the same challenges other non-captives face. You can’t control the residuals. All the factors that go into a lease make it hard to compete.
What is the CU’s appeal to F&I managers? Credit unions are community-based and -focused. Partnering with someone in your geographic region creates a synergy that might not otherwise be there.
How are those relationships started? They can solicit the lending department at one of their local credit unions, or they can contact an aggregator like us. Our lending platform can connect to all local credit unions.
Are CUs getting swept up in the wave of consolidation we’re seeing in the dealership and agency segments? They are. And it’s all about gaining efficiencies and not because those credit unions are not successful. But consolidation only means good things for dealers. They get to deal with financial institutions that have high levels of efficiency.
Are CUs connecting with digital retail and F&I platforms? It’s a hot topic. We are currently working from a product perspective to make sure CUDL and our credit unions are nimble enough to meet the shifting demands of consumer behavior and keep up with dealers. We are currently implementing our strategy to facilitate digital retailing, and are always open to partnering.