Online Services Move Car Buying from Dealer Lot to Laptop

MAR 14, 2014 10:51am ET

HAUPPAUGE, N.Y. — Many credit unions are missing out on auto lending opportunities because they're not engaging with their members early enough in the car-buying process.

A group of credit union executives and analysts told Credit Union Journal that while the number of CUs using online auto-buying services has risen, there are far too many others missing out on potential business opportunities.

"The credit union industry needs to get more serious about helping members shop for a car from the minute they decide to shop for a car," said David Jacobson, CEO at GrooveCar here. "Not the minute they decide to finance one, because that's too late. If you can engage the member before the financing option, you're going to increase your loans organically, like you've never seen before."

Jacobson pointed to online portals such as Auto Trader, True Car, Car Quotes and others that allow members to shop for a car online — either new or used — so that they're better prepared by the time they hit the dealer lot.

"People are going online and going to Auto Trader and True Car and Cars.com, and when they get there, they see banks and insurance companies," he said. With big banks and insurance companies slinging their services there and not enough CUs doing the same, credit unions are missing out on a channel that can have a big impact on the bottom line, according to Jacobson.

One institution that has entered this arena is Houston's Space City CU, which recently debuted a car- buying service through Members Private Sale.

"A lot of people are researching online now," noted Craig Rohden, CEO of the 8,100-member, $64 mil ion credit union. "We're hoping that having this tool on our website will capture them early in that process while they're doing research. People who want to sell their car are conscious of wanting to sel it privately, rather than trading it in, where you'll get wholesale or less. So if they have better options to sell their car, they can kill two birds with one stone with this product. We're hoping to catch them early in this process and hoping to capture their loan."

Space City pays an up-front fee to Members Private Sale, along with a monthly fee — both of which are "nominal," according to Rohden — and then a flat, per-car fee for each deal made as a result of the site.

"But all of these fees are very reasonable; the cost of providing the product is far outweighed by the benefit," he added.

'Lead With Service'

The previously little-used online car service at Bethpage FCU, in Bethpage, N.Y., was just revamped last year.

But, as Michelle Dean, SVP of lending and investment services, said, "unless you market it and put a focus on it, it's just something you have."

As such, she said, "our plan this year is to lead with that. Instead of leading with 'My rate is X' or leading with the product, lead with the service, and once they come in for the service and they see you have loans, insurance, networks of dealers and other services, that member can come to you for an auto buying experience."

Bethpage works with both GrooveCar and CU Auto Coupon for its online car buying services. Because Bethpage has only just begun to focus on those online offerings, they can't yet be tied to anykind of growth. Dean said that just as important as the growth potential, however, is making sure that the credit union stays current with member expectations.

"At the end of the day, what has really changed is the Internet and the mobile experience," she said. "Most people, statistics show, start shopping for cars online, doing all their research online, and then go to the dealer and try out their car. As a credit union, we need to be in that space so we don't get cut out."

No Competition With Dealerships... Yet

While Bethpage is a large credit union with significant market share, other credit unions of a variety of sizes are still at varying stages of readiness when it comes to these types of sites.

At $310 million McGraw-Hill FCU in East Windsor, N.J., VP of Lending Kathleen Petrelli said her institution continues to monitor auto-buying services, but has not yet established one.

"If we find a partner that we would feel comfortable with, we could move forward," Petrelli said. Similarly, San Antonio's Security Service FCU does not currently use an auto-buying site, in large part because it relies on a business model centered around dealer relationships and indirect lending.

purchase a vehicle, there's a pretty strong chance I'm going to get that deal," said Charles Goss, EVP and chief lending officer at the $7.6 bil ion CU. "I don't want to set the stage where I tell the dealer how to do his business or negotiate the deal for the credit union's perspective. I'm just there to provide a service and point-of- sale convenience for our members so we can get those loans back in."

Goss said the numbers back up that strategy. In addition to significant market share via indirect lending in Texas, Colorado and Utah, Security Service FCU regularly funds more than $250 mil ion in car loans each month through that particular delivery channel.

At Arvada, Colo.'s Partner Colorado CU, CEO Sundie Seefried said that the $260 million credit union does work with AutoTrek for some online services, but that things are stil slow.

"Those members that have used the service are usually very pleased with the service," Seefried said. "However, while we do up to 20 cars a month on a good month with AutoTrek, we stil see that a majority of our members visit the dealership directly."

Dealer Today, Web Tomorrow

Tony Boutelle, CEO at CU Direct, the widely used CUDL network for indirect lending, noted that while he is still bullish on indirect lending, "Most auto loans are still done at the dealership," he said — the trend is toward online shopping, to the point that by the time the members hit the dealer lot, they already know what car they want and how much they want to pay.

Where most credit unions — and auto-buying services as a whole — come up short, said Boutelle, is too few have integrated those online services with an online application. CU Direct has its own service, AutoPREMIER, but it has only been rolled out at a few credit unions so far, including Digital CU and The Golden 1.

"We're the only platform out there where our mobile apps and Internet apps bring auto buying and auto lending together," said Boutelle. "You have to bring it together where every car you're looking at has 'apply now,' has monthly payments for the member. As they go through the process and narrow down what they want to buy, you have to make it easy for them to get preapproved."

Don't Get Beat By Blue Book

"All of your dealmaking and research is done online now," said Keith Winn, EVP and COO at Green Profit Solutions, which recently published a white paper on credit unions and online car buying services.

"Credit unions are figuring this out.... They don't know if this is business they would've gotten before this or not; it's very difficult to measure. But they're happy with the results they're getting, and it seems to be growing, as they make more and more members aware that you don't have to go to [Kelley Blue Book], you don't have to go to Edmunds, where members can get drawn away."

Winn's white paper is based in part on a survey sent in January to various credit union industry groups on LinkedIn, along with 200 CU executives.

Out of the 45 respondents, 40% said they currently use an online auto portal, while 27% said they don't have plans to implement one. Out of that subsection, 50% of respondents said they haven't bothered with the technology because members visit them directly when they're in the market for a vehicle.

Winn and Green Profit Solutions represent the online auto buying service True Car.

There are plenty of challenges associated with auto buying services, said Winn, including making sure that members know the service is available.

"There have been credit unions... that have almost essentially buried the portal," he said. "'Yeah, we got it, but we didn't tel anybody about it.

"I'm not sure why. They have to do some kind of marketing to make people aware."