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First Community: Indirect Lending Success

Who  
Ellisville, Missouri-based First Community Credit Union (FCCU), the largest credit union in St. Louis, is also the second largest in the state and ranks 44th among all state-chartered credit unions in the U.S.  FCCU is a $1 billion financial institution and has more than 136,000 members, representing more than 200 companies in fifteen counties in St. Louis and three counties in Illinois.

How is FCCU building and managing auto dealer relationships, managing indirect loan risk and cross-selling new members?  Glenn Barks, president of FCCU, shares his strategies for indirect auto lending that lead to 68 percent growth in volume with the help of the Aimbridge Indirect Lending technology and services solution. 

Background  
Indirect auto lending programs link consumers and auto dealers via the Internet and provide loan volume to credit unions that they might otherwise not have. In contrast to direct loans, where customers apply at the credit union, indirect loans are actually initiated by the dealer, usually while the customer is at the showroom, i.e. the point of sale.

The indirect process has become so fast and efficient in recent years that approximately 90 percent of car loans are now made in this manner.  Credit unions, in particular, are capturing more auto loans at the dealership via indirect lending than ever before.  FCCU responded to the opportunity to increase its loan volume by implementing Aimbridge’s technology to make these loans easier to find.  FCCU chose to partner with Denver-based Aimbridge Indirect Lending because Aimbridge had already created a network of dealers and had a loan decisioning system in place to support the credit union’s risk-based scoring model.  Aimbridge Indirect Lending is a national distribution channel that connects credit unions with an automotive dealer network to provide members and potential members with automobile loans and leases.
 
The Dealer Network
Historically, there have only been a small number of indirect lenders around.  Now, buyers can go to a dealership and be offered rates from five different financial sources.  FCCU realized early on that the key to maintaining a competitive edge was building and maintaining its dealer relationships, since dealers have the final say in which lender gets the loan. 

The emphasis on indirect lending means the dealer is, in effect, the customer and will look to lenders who are service-oriented and provide quick responses. Auto dealers have taken control of loan originations and understand how to play lenders against each other to get the best rates for buyers or highest referral fees.  These dealers maintain a list of financial institutions to which they steer car buyers to obtain financing.

A lot of work goes into maintaining lender/dealer relationships.  Aimbridge provides each of its credit union clients with a locally-based marketing rep and support staff whose responsibility is to problem-solve, strategize and build relationships with dealers.  In addition to weekly reports that inform FCCU of market conditions, the Aimbridge marketing rep provides insight on what specific dealers are saying.

“Having a marketing rep constantly out there visiting dealers to make sure things are going smoothly is invaluable.  It’s hard to solve a problem when you don’t know there is one.  With a good rep, dealers are more likely to send you deals,” said Barks.

Decision Engine  
Despite the emphasis on dealer relationships, lenders need the discipline to step back from the kind of deals that could haunt them in a few years. When the auto lending market overheats, there are essentially two ways in which lenders compete for business: they either offer dealers a little more incentive on loans, or they lower their credit standards to make more loans.

Aimbridge is an integral part of FCCU’s risk management program. The credit union protects its risk exposure with a consistent credit scoring method and an aggressive collection policy.  The electronic processing and automated scoring systems used by the FCCU network are an advantage for dealers as well as members.  The Aimbridge platform lets dealers know within seconds if an applicant meets FCCU’s standards and shops other lenders if declined.

"We compete a bit on price, but we never cut our credit standards," added Barks.  FCCU makes no exceptions for applicants who do not pass its credit-scoring matrix.  The credit union typically settles with dealers within 30 minutes of receiving electronic documentation of the sale.  Dealers know that a fast settlement reduces their risk exposure.

Reaching Out to Indirect Borrowers 
Many people need auto loans after normal business hours and the weekend.  Indirect lending allows credit unions to potentially sign up new members and increase loan volume, thus FCCU needed to be available at all times.

By using Aimbridge Connect, dealers are able to submit loan applications and shop them to lenders at the same time.  The system provides instant-decisioning, a unique feature which gives applicants a “yes” or “no” answer at the dealership 24 hours a day, 7 days a week. 
 
FCCU’s indirect program is proactive in booking indirect borrowers to become new members with follow up letters, phone calls and special offers. This effort has consequently contributed to stronger growth in the credit union’s member base. 

“We want to make it easy for people who take out a loan indirectly through us to join FCCU.  It is becoming apparent that our members love the convenience,” said Barks. 

Results 
Partnering with Aimbridge has helped the credit union bring in new loan volume on the indirect side over the last five years, representing a majority of its overall auto lending growth.  The indirect lending program accounts for $16.1 million of FCCU’s total loans outstanding as of May 2005, up from $5 million in the same month in 2000. Currently, FCCU has good relationships with 210 auto dealerships. 

But the lesson is clear: to ensure long-term survival in indirect auto lending institutions need to build and maintain dealer relationships, manage indirect loan risk and cross-sell new members acquired through Aimbridge’s indirect lending program.

Clearly, indirect auto financing is becoming a powerful tool in the credit union arsenal.
 
About Aimbridge 
Founded in 1984, Aimbridge markets financial products, such as auto loans and insurance products through partnerships with credit unions. The company helps its partners attract members and deepen their relationships by providing members with more reasons to do business with their credit unions.
Aimbridge Lending is comprised of three divisions, including Aimbridge Indirect Lending, Aimbridge Financial Services and Aimbridge Disposition Services.  The company is headquartered in Denver and has remote offices throughout the United States.
For additional information, call 1.888.400.2865 or email info@.aimbridge.com.