COVID-19 has wreaked havoc on the economy with the auto industry and CU auto lending being no exception. March, April, May and June new vehicle sales were down 41%, 60%, 29%, 20% respectively, compared to prior year periods and used vehicles experienced similar downturns.
While auto dealers and manufacturers have always embraced technology, data, analytics and AI, the COVID stay at home and social distancing mantra caused them to significantly step up and enhance the use of these tech-oriented resources. Consumers were not going into showrooms so the auto industry pivoted and embraced everything digital from online research to shopping, deal-building, F&I, contracting and touchless delivery.
In fact, a goal of the auto industry is to develop “Omni-Channel Retailing” as is depicted below by the National Auto Dealers Association. Dealers have been driving toward this for quite a while, but COVID has expedited the necessity, technology development and enactment.
Might I digress? Here’s what the market thinks of Omni-Channel Retailing and “touchless auto buying”. Below is the largest provider of touchless home delivery vehicles’ (Carvana) stock price from early April to early July, up 126%, as other auto dealers and manufacturers’ stock valuations languished. Digital technology is the future of auto sales and finance. We suggest you ask your Team, how are we positioned to compete in this paradigm?
The biggest problem for CU’s with this Hi-Tech auto retailing approach is that the Omni-Channel/Dealer controls EVERYTHING which leaves very little room for CU financing.
As the bread and butter of CU member engagement and profitability, what can credit unions do? Auto loans are a CU product that continues to “give” throughout a member/family relationship and can easily be 10, 20, 30 or more loans during a member lifecycle, so THIS IS A BIG DEAL!
But CUs say “We’re not a dealership. We’re a financial institution!” . . . so think of it this way. . . auto dealers started by selling vehicles and weren’t in the banking or finance business. They sold cars for decades and let the FI’s handle the financing. Then dealers realized “there’s good money in financing” so dealers got into financing; some via captive finance companies such as GM Financial and Ford Credit, some via indirect relationships with banks and CUs and others with buy-here/pay-here. In all cases, the dealer is able to direct the financing to the financing source that makes the dealer the most money, PERIOD. So dealers pivoted into a complementary part of car buying/ownership . . . the financing.
Speaking of pivoting, this isn’t 1960, 70, 80 or even 90 when car buying started at the dealership. This is 2020 and technology has transformed car buying and financing. Today car buying starts online 24/7/365 from a member’s phone, tablet, computer or even TV. They spend 10-12 hours online researching, pricing, comparing, etc before they even think of stepping into a dealership. By the time they get to the dealership, they generally know what they’re looking for, the options packages and pricing available and don’t want to have to “deal” with the dealer. They want to get in and get out quickly and, what’s best, CU members know that the dealer doesn’t have the members best interest at heart . . . this is the CU “ace in the hole”.
This last point is key to CUs future success in the auto vertical as members know their CU, not dealers, have their best interest in buying and financing vehicles.
So where does this leave us? It’s actually quite simple once you understand the typical member spends 10-12 hours of online research, buying and financing. Just like when dealers stepped “outside the box of just selling vehicles” and stepped into the lucrative space of financing, CUs must step outside the box of “just being a FI” and provide the technology, data, analytics, marketing and AI to direct their members to the CUs website and digital solutions. By providing these tech resources, CUs will attract members early in the vehicle research process in lieu of members accessing all the other online auto buying resources where the cookies are placed and they get bombarded with 3rd party auto loan ads. Via the CU auto research and buying tools, members will gravitate down the CU lending funnel, and into pre-approval far in advance of visiting the dealer. So when the member finally visits the dealer in person or virtually, with pre-approval in hand, the member will act like a “cash buyer”, getting the best deal for a win/win for the member and the credit union.
Consider the following graphic, complements of the NADA, which depicts the typical steps in researching, buying, financing a vehicle. This is how dealers are trained and think about the process. To compete, CUs must understand this process and incorporate as many steps as possible in their digital auto-buying and financing solution. At a minimum, the items circled should be implemented by all CUs as they are readily available and easy to implement.
The bottom line is this. To be successful in the tech-driven auto vertical today, CUs must embrace and promote their natural member trust relationship which is contrasted with the typical dealer (not so trusting) relationship. Once you embrace that trust factor and understand how members spend 10-12 hours online before buying a car, you must embrace technology, data, analytics, AI and marketing and then drive members into your digital auto funnel.
CUs are the only ones in the auto vertical that have a vested interest in helping members save on buying and financing vehicles . . . People Helping People . . . Mission Accomplished!