MADISON, Wis.–While the coronavirus pandemic has put the brakes on car sales, one CU that has quickly changed lanes as it adjusts to consumers’ quickly changing attitudes toward car buying believes it is well poisoned when the pandemic ends.
UW Credit Union here has partnered with Carvana to offer its members vehicles. Carvana has become a popular online car buying service, with its ubiquitous TV commercials showing it delivering vehicles to consumers’ homes and then giving them a window to return it if they are not satisfied with their purchase.
And while UW Credit Union entered into its partnership prior to the coronavirus pandemic, the arrangement may prove to be even more valuable should consumers continue to do more shopping for vehicles online rather than in person once the pandemic ends.
Mike Long, EVP and chief credit officer at UWCU, said the decision to partner with Carvana beginning in May of 2019 was initially an experiment, but the new channel for auto loans is now expected to drive benefits to both the credit union and its 278,000 members.
“We made about 50 transactions with Carvana last year,” said Long. “Now, that’s a very small percentage of our auto loan portfolio, and I did not expect it to immediately be some big new revenue stream. However, I think there is very good potential for growth here.”
As expected, it’s been younger member who have been the credit union’s most avid users of Carvana to date, Long said.
“Younger consumers have lived their whole life buying things off the Internet,” noted Long. “I think this is just a natural progression, and I think there's a place for Carvana at UW. It's not going to replace the auto dealer on the corner, but it's going to satisfy the needs of a certain segment of the population. I think this is a good partnership for us because it allows us to offer members a seamless way to finance a vehicle and if they're going to purchase it through Carvana we want to make it as easy as possible to get them the money they need.”
Educational Process
UW Credit Union said it is helping members through the education process of buying a car through Carvana with details on its website. When members order a vehicle online through the Carvana link on UWCU’s site, the vehicle is then delivered to the member’s door and the credit union gets the financing. Or, for members in the Milwaukee area, the vehicle can be picked up at an on-site Carvana “vending machine.”
For cars located out-of-market where a Carvana vending machine is not available, the company subsidizes $200 of airfare for a one-way flight for car pickup.
“So far the reaction has been really positive,” said Long. “In fact, we've had a few employees purchase vehicles through Carvana and they said they are amazed by the process. It's a very easy way to buy a vehicle; there's no hassle as far as pricing, and Carvana really stands behind the seven-day test drive.”
The performance and reputation of the company weighed strongly into the decision to do business with Carvana, explained Long, who added no money is paid to Carvana from the CU for each deal, and vice versa.
‘Be Careful’
“You want to be very careful in choosing a company to partner with in this new area of online car shopping,” said Long, who emphasized UWCU looked closely at the performance of Carvana and the satisfaction of consumers who use the service prior to making its decision. “Carvana has now been around for a couple years, and they have a very good reputation. We did a lot of research on them to make sure our members who would go to Carvana would have a good experience and be treated well. Because, in a way, we are endorsing this option when we promote it.”
Long said Carvana approached $3.1-billion UWCU last year about the partnership.
“As Carvana entered the Wisconsin market more aggressively, I think they looked at us, at our size and field of membership and thought we would be a good fit with them,” explained Long. “So, they approached us, we spent a couple months working through things, and then decided this would be a good thing for our members.”
Growing Piece of Strategy
Long added the credit union looks at the relationship with Carvana as it does other local partnerships.
“Yes, this is not something we have done every day over the years, this is new,” noted Long. “But it’s really not any different than working with another dealer here in the city. Arranging the financing and funding the loan is similar. It’s just a different type of dealership.”
Long said financing terms and approvals are the same for Carvana as any other local dealer the CU has an indirect relationship with. UWCU will grant preapprovals, and loans are accepted based on the standard approval/underwriting process the CU uses for its indirect relationships.
Long said the credit union expects to step up its marketing for Carvana this year.
“We did not aggressively market the partnership last year,” said Long. “But this year it’s a bigger part of our strategic objectives.”
Long added the coronavirus pandemic has not impacted usage of Carvana through the CU.
“While it’s difficult to gauge the impact of physical distancing and the car buying experience, it would make sense that consumers would be more likely to consider alternative online buying services like Carvana,” said Long. “That being said, we haven’t seen any material changes to our members’ buying habits to date. I think that is largely a function of consumers adapting to their own financial realities more than anything.”