Friday, April 01, 2005

Credit Unions: Friend or Foe?

For decades now dealerships have operated on the premise that local credit unions are their competition in the financing arena. Dealerships often view credit unions as competitors who give unqualified sales counsel and offer policies that do not match the quality of those that dealerships can provide for their customers. For example, a local credit union here in Clark County, Washington provides a GAP policy for their members’ loans. However, the loan officer apparently does not tell customers the policy is non-cancelable after 60 days.

Dear readers, this same credit union sells the GAP policy to members who walk into the credit union and sign all loan documents onsite. I daresay if this situation were replicated at a car dealership, the State would undoubtedly have someone’s hide for failing to fully disclose all the terms of the loan!

Typically, when a customer signs loan documents at the dealership the vehicle is the only loan collateral. Conversely, when a customer signs loan documents with a lender, the lender may use additional collateral and perhaps fail to disclose the fine print in the truth in lending portion of the documentation.

Today, many local credit unions are buying dealer contracts. When a lender agrees to purchase a dealer contract, the lender signs a dealer agreement and agrees to fund the dealer’s optional policies. While the participation may only be a flat fee, it allows the customer to purchase a tailored service agreement and a GAP policy that is cancelable upon early termination of the contract, offering the best arrangement for all parties involved.

My recent counsel to a dealership F&I manager who is losing most of her finance business to a local credit union was for her to call on the credit union as a lender prospect for her dealership. Yes, you may have to bite your lip when you tell a customer you can write the contract to go to their credit union and save them time. The fact remains that the loan and policies are better protection for the customer when all the documentation is completed at the dealership.

If you are looking for lending sources that are convenient for the customer and good for the dealership, it may be time to make your local credit union your partner rather than your competitor.

Join me at the June NIADA Convention in Atlanta to learn more about building lender relationships.

“Kelly’s Korner”, OIADA Squeaky Wheel Newsletter, April 2005 Issue