SAN ANTONIO—The largest indirect auto lender among credit unions says there are four steps that are critical to turning those indirect members into active, participating accounts.
Security Service FCU contends that branch location, the personal touch, attractive products, and a program that ensures a great member experience at the dealer is a winning recipe.
Converting indirect members into active CU members is no easy task, acknowledged Jim Laffoon, president and CEO of Security Service, which has been in the indirect lending business since 1990.
“We have been doing this a long time. And if we were cooks, I’d say we have tried every recipe in the world to make new indirect members use the credit union for more than just a loan,” Laffoon told CUToday.info.
While Security Service currently does not closely track how many new indirect members become true CU converts, the approach it now uses has delivered SSFCU some of its best overall bottom-line returns, said Laffoon, who estimated the $8.2-billion Security Service closes about 10,000 indirect loans a month.
100 Million Members: Now What?
Indirect auto lending has been a huge contributor to the industry’s growth over the years, and particularly during the recent membership boom as new car sales have surged. The issue of converting indirect members into profitable members is being examined by CUToday.info as part of a year-long series titled “100 Million Members: Now What?”
“When you get so many members from indirect loans, from a strategic standpoint it’s easy to conclude that it’s imperative to convert these members,” said Laffoon.
Tony Boutelle, president and CEO of CU Direct in Ontario, Calif., said his company partners with credit union clients to help them address the tough task of converting indirect loans into PFIs.
“This is the Holy Grail of indirect lending,” acknowledged Boutelle. “When someone goes to the dealer to get a car, they go to get a car and the loan comes with it. They are not going to the dealership thinking about changing their financial relationship.”
Boutelle said Ontario, Calif.-based CU Direct plans to introduce a program this year that will help CUs cross sell to indirect members.
According to CUNA Mutual Group Chief Economist Steve Rick, the latest credit union data shows credit unions are doing a good job of creating profitable members from the large numbers of new members rolling in via the indirect channel (see related story).
Record Membership Growth
“Membership growth right now is the fastest we’ve seen since 2003. Credit unions are booming with new members and a lot of that has to do with new auto loans, and many of those loans coming via indirect,” said Rick.
Laffoon pointed out that deepening relationships with an indirect member is no different than selling the credit union to any consumer on the street. “You have to have strong products. It starts with compelling offers that would be attractive to any individual.”
The next step is ensuring members have a great experience at the dealership, emphasized Laffoon, who stated that if the new members enjoy buying the car, they will look favorably on the credit union when it reaches out.
To make sure dealers deliver great service, Security Service carefully screens dealerships.
“Our dealerships have to apply to the credit union to be part of the program,” said Laffoon. “We only do business with new car franchise dealers we are comfortable with. They apply, we vet them . . . In many cases we know the owners so we are always pretty comfortable our dealers are giving members exceptional service.”
SSFCU pays dealers a competitive fee and reviews each relationship annually, making certain all of the conditions at the auto store are the same as when the contract was first signed.
“If we feel any dealer is not providing the kind of service we require, we discontinue our partnership,” emphasized Laffoon. “We also have staff who work with the dealers every day. If a dealer changes its pattern on how it sells loans to our prospective members, we pick up on that quickly.”
Laffoon said carefully choosing and monitoring dealerships leads to extremely satisfied members when the credit union makes the initial contact.
“We don’t really try to sell them anything on this follow-up call,” said Laffoon. “We just want to let them know we have other things to offer, we are close by and come give us a look. When they come to the branch it creates a much better selling opportunity.”
Security Service prefers the personal touch when follow-up calls are made, having a member of the office located closest to the new member make the call. Laffoon said the credit union has learned over time that outbound calls from professional sales people don’t work well, and that most mailings to indirect members are tossed into the trash.
“We have found our current approach to contacting the new members to be twice as effective as any other program we have used,” said Laffoon.
CU Direct’s Boutelle, too, has seen credit unions do well with indirect follow-ups when the credit union has a branch nearby the member. “They don’t do as well when offices are a distance away,” he said.
Boutelle suggested that reaching out via phone may not be as effective today as it once was. “It’s hard to catch anyone on the phone anymore to take a call from someone they don’t know. But we see credit unions effectively engage with new indirect members through mobile and e-mail.”