Turn Your Credit Union’s Auto Lending Around in 2025

The auto industry experienced quite the ordeal during the COVID-19 pandemic with new vehicles in short supply, driving the used car prices to record heights. Now that the market is on tract to reach pre-pandemic levels in terms of new vehicle sales, credit unions are being challenged by other lenders and their low- to 0% rate loans. The captives have especially taken advantage of that stronghold, comprising 61.8% of the new vehicle market share versus 54.2% last year, according to Mercer Capital.

Credit unions also have to deal with the challenges of indirect lending, mainly the fact that many still see indirect lending as fraught with fraud and higher delinquencies. One indirect platform is breaking these myths around indirect lending by leveraging technology yet providing a high-touch relationship with its credit unions and dealerships.

Listen to CU Acceptance Group CEO Mariam Janan, who’s a real firecracker, as she sits down with The Credit Union Connection Co-founder and Host Sarah Snell Cooke to discuss her indirect path to auto lending tech and how credit unions can use indirect auto lending for safe and sound growth. Mariam also provides tips on how they can stand out from other lenders. You know you wanna watch the video! —->>>

Read the full transcript:

Disclosure: Transcript is automatically generated

Sarah Cooke 00:00

Two weeks ago. Oh boy, and you know what you're talking about. You don't need to, don't need to be like second guessing yourself. But anyway, Alright, here goes Hello and welcome everybody. My name is Sarah Snell Cooke. I am your host and Co-founder of The Credit Union Connection. I have with me today. Mariam Janan. Welcome.

Mariam Janan 00:23

Thank you. Glad to be here.

Sarah Cooke 00:24
And Mariam is the CEO and founder of CU Acceptance Group. It, started it when you were a teenager, right?

Mariam Janan 00:33
I was. I was 19 when I started.

Sarah Cooke 00:35
Yeah. So why don't you give us a little your background and a little bit about the company?

Mariam Janan 00:38

Okay. So I've been doing this for a little over 25 years. About 27 years. I started, I was working in banks and credit unions. I did an internship at a bank, learned a lot about banking, learned a lot about credit unions. Simultaneously, I was buying and selling cars. Specifically, I was going to insurance auto auctions, buying cars and remarketing them. And in that, in that, in that field, I learned, I met a lot of dealers. I met a lot of auto dealers. I learned about that side of the industry. I got to know that credit unions needed auto loans, and my family, I grew up in a culture where where it was taboo to work in any men's industry. So I decided to choose the most male dominated industry to get into. And so yes, I've been doing this for, like I said, 25 plus years, and I absolutely love it. I'm glad to be here to talk about it.

Sarah Cooke 01:37

Yeah, that's awesome. We're glad to have you, too. And so as you're, as you're looking ahead to 2025 for your business, give us the top three trends that you're expecting to see happen with indirect lending coming up in 2025.

Mariam Janan 01:54

So I think, right now, and I think also in 2025 we're going to be seeing a lot of, we're going to see, we're going to see a reduction in auto loans, I think in terms of credit unions. We will, I'm seeing a lot of headlines where captives are dominating the industry, and I think that now that we're back to pre pandemic levels in terms of new vehicles, so I think we're going to see a lot of incentivized rates, subvented rates, from from the captives, zero to 4.99, rates that we can't compete with. And so I think we are going to see a lot of volume going to captives versus credit unions. And so I think that's something that we need to navigate and learn to deal with in the coming years and prepare for it. Another thing I think we're going to see is, I think that used car values are going to continue to be steady. I don't think that they're going to, there's going to be a decline in used car values, mainly because the average car price has increased to $45,000 so if, a lot of people can't afford that, and so they're looking where before they would be looking to new cars with the higher interest rates now and the higher average cost of a new vehicle, I think consumers are going to continue to look for used cars just to get the lower pricing. I also think that liquidity issues at the credit unions are starting to get better, and I think that more credit unions are going to be looking for auto loan volume, and so hopefully that will help them to be less conservative, so that they can be a competitor in that market as well. So I think those are the top three things for 2025 to keep in mind.

Sarah Cooke 03:35

And so indirect lending has gotten a bad rap lately, particularly because of fraud or higher delinquencies and indirect borrowers aren't real members. So how can we do better in this area of indirect lending?

Mariam Janan 03:50

I think, I think that indirect lending has had a bad rap for over 20 years, and I think that started because some credit unions got into the industry without the expertise. And I think there were a few bad companies out there also preying on the credit unions, and, you know, having them do auto loans when they had no business doing them. So I think, I think that, you know, any industry, anyone can get a bad rap. I mean, there's credit unions that, you know, I see articles every day that somebody was arrested for fraud or went to, you know, jail for fraud. I think that you have bad apples in every industry, and I think that that bad rap just kind of stuck around. And the industries, it is kind of a small world, right? Everybody talks. I think if you have the expertise in the industry, and you've got the proper practices and procedures in place, you can really protect yourself. Like, one of the things that we do in our business is we interview every customer before we, or every new member or potential new member before sending the loan off for funding to our credit unions. I think there's so many different, red flag, red, red flag techniques that we can implement that can eliminate a lot of fraud and errors in the, in the industry or in the business.

Sarah Cooke 05:12
Yeah, and that's that's great, because some of it's just, here's a marketplace of loans and fight

them out, fight it out for years.

Mariam Janan 05:18

Right. And what happens is, some of these, some of these companies, what they do is they connect credit unions to the dealerships without the middle portion of it, which that middle portion is, you know, building the relationships with the dealers. It's, it's creating dealer profiles to understand, you know, who the bad apples are and the bad players are and the bad actors are, understanding the type of loans that are coming from each one of these dealers. There's, there's just so many middle pieces that need to be addressed where just connecting a credit union without the expertise to a dealership just doesn't make sense.

Sarah Cooke 05:54

For sure. Oh so, and then, one of the things we're hearing a lot about also, is automation. Huge buzz word right now, and credit unions want to be more efficient, and particularly around lending, and then it's great. It's a great thing to strive for, however, there can be drawbacks. And so how does that relate to auto lending and indirect auto lending specifically?

Mariam Janan 06:16

So I think automation is fantastic. I think it's great. I think it reduces the time that we spend in looking at every loan. It also gives us the ability to, to automatically decline loans that, that we're not, you know, we're not even a player in but also it could, it could, it could be not so great. I mean, what we could also do is create a hybrid model where we use the automation part to make us a little bit more efficient. And you know, the no brainer loans, you, it automatically approves. But in terms of return on investment, we're going to be missing out if we, if we create a cookie cutter approach, we're going to be missing out on a lot of profitable loans and potential new members that we could offer so many different services to if, if we just touched the loan and looked at it and felt it and understood it and understood who the person is that we were dealing with. So again, you know, I'm a fan of automation in order to speed things up, but the the way you want to stand out with your dealers is you want to have something a little bit different, which is touching loans and looking at them and working with the dealers. Otherwise, they do have access to hundreds of lenders that are automated. And so what is it different that we bring to the table?

Sarah Cooke 07:33

Yeah, and that interview piece in particular, I think, you know, ensuring there's a human there involved, and looking beyond the credit score, especially for credit unions, I mean, that is, you should be doing character based lending in it, you know, in addition to all kinds of other factors that you bring into play. But yeah, I mean, that's the high touch that credit unions are known for. And so, and I think one of the better, better things credit unions are known for, too. So and you create, again, creating that distinction, or that distinguishing, distinguishing themselves, not only with the dealers, as you were mentioning, but also with the Dave's of the world, you know, the, that are automating a lot of the stuff that credit union or potential credit union members are doing. So, and there are a lot of, but back to the dealers, there are a lot of nuances to dealing with dealerships. You know, are you going to pay a flat fee or a percent, and what works, and what are you willing to take on, as far as risk and who's liable for what when the vehicle like disappears after the, when the first payment is missed. So what are your top tips for credit unions or trying to handle the dealer relationships on their own?

Mariam Janan 08:54

So I think the most important part of the dealer relationships is having a sound dealer agreement in place. That's number one. I think that understanding what is in your dealer agreement and having a sound dealer, dealer agreement in place. It could be a first payment default clause, a fraud clause, a bankruptcy clause. So we have all those in our dealer agreements. So number one is knowing that, because you know, that obviously gives you the recourse to go after them if something happens. Number two is, again, like maintaining the dealer relationships, establishing a relationship with them. If the dealer values your relationship, they will go out of their way to help you. If you have a first payment default clause, you can have a contract in place. Some dealers won't honor it, and you know, then attorneys get involved and so on. But if you've established a relationship with them and they value your relationship, typically, they'll say, no problem, bring it back. We'll buy it back. In terms of fraud and other things, it does happen, but all you can do is have the proper procedures and practices in place to protect yourself. And that, again, is doing customer interviews, you know, it's, it's creating a consistent process also with your staff, so that they catch any red flags. An example would be a dealership that sends, you know, mainly, subprime loans to you. All of a sudden, they're sending a prime loan to you. You want to go, Wait a minute. Why is that off? And so there's, there's different practices that, again, you can implement and educate your staff so that when something comes across that's like that, that you know, triggers a red flag and requires a little more investigation.

Sarah Cooke 10:33

Mm, hmm. Yep. Any kind of anomalies should be setting up those red flags. So what are the incentive, essential ingredients to maintaining or earning that best ROI for your credit union members, as it pertains to indirect lending?

Mariam Janan 10:50

I think number one would be relationships with with your dealerships. That's number one because if you have a good relationship with the dealer, you can get a diversified portfolio, which would be number two, right? So in order to get a diversified portfolio, you need to have the relationship with the dealer to allow them to cherry pick that they allow you to cherry pick your loans from them. And so you can reach out to a dealer and say, hey, you know, I want 15 loans from you this month, or 20 loans from you this month, and can you mix it up with, you know, seven prime and seven middle prime and seven sub prime. So I think diversifying the portfolio, maintaining a close relationship with your dealers, that also helps, again, mitigate risk, and having a diversified, I'm sorry, having a hybrid decisioning model. And so if you again, if you become cookie cutter, then they're just going to allocate a certain amount of loans. And if you're only doing prime loans at 6% and one of those go bad, it wipes out the profit on all the rest of the loans. So you know, having a hybrid decisioning model allows you to take an extra step to look at, look at it from an underwriting perspective, look at the different options that you have available. One of the things that we encourage our credit unions to do is, once they decision a loan, let's say they approve a loan, they notify us, and they let us know, because we get on the phone with customers, that they're also approved, maybe for a credit card. And so we offer that at the point of interview. That way, now they have two products with the with the credit union, and then it's easier to sell a third or fourth product and establish a relationship with that member. And as we all know, you know, once you establish a relationship with a member, you know you could sell, sky's the limit. What you can sell something.

Sarah Cooke 12:33
Right, right. And it's all about helping them out too. So if they're in need of a credit, you know, say, consolidate debt or lower their credit card payments or interest rate, whatever.

Mariam Janan 12:44
Home equity loans or anything else. Absolutely.

Sarah Cooke 12:47

Yeah, it's a great opportunity to build that relationship, because that's one of the things you always hear about indirect lending, is, well, they never become, you know, multi user members and, but it's possible when you do it right.

Mariam Janan 13:01
We work them the right way, correct?

Sarah Cooke 13:03

Yeah. And so we've covered a lot of things just now, all indirect lending all the time. No, but we've covered a lot of things right now. And Miriam, I want to ask you, I always allow my guests the final thoughts. So what are your what are the last words you want to share with our audience for today?

Mariam Janan 13:22

I think that indirect lending has had a bad rap. I think if you've got the experts in place, I think if you've got the right team in place, indirect lending can be very successful for credit unions. I think in 2025 there are a lot of question marks on what's going to happen. But if you, if you put all your best practices in place, and if you have a bad program, I mean, break it. Break it down to nothing, and rebuild it properly, put all the right practices and procedures in place, hire the right experts, and you could have a successful program for, you know, 2025 and on.

Sarah Cooke 14:00
Awesome. So thank you so much for your time, Mariam, appreciate it.

Mariam Janan 14:03

Thank you. I was glad to be here. Thank you for listening to me and allowing me to share my thoughts.