By Ray Birch
PHILADELPHIA—Credit unions need to “face the facts” that car loans are just not being originated like they once were at the branch, and that they are also losing out in the “trust” game to fintechs when it comes to auto loans, according to one automobile industry analyst.
Jenn Reid, head of sales, digital lending, motor vehicle for Wolters Kluwer, told CUToday.info both of those changes are part of the rapid shift to digital car buying.
“From a credit union perspective, they have to realize the old process—where you find a vehicle you like, you reach out to the credit union, and you get either get pre-approved online or go into a branch, has very quickly become the old way of thinking,” said Reid. “There just is a real delay in that kind of financing.”
The car-buying consumer who shops digital first especially does not like those delays, said Reid.
“If you're going to remain relevant with a lot of the big players in this space, you have to be very digital-first in your lending experience,” Reid continued. “And it does not mean just engaging with the member digitally, up front in the car-buying process. This now means digital end-to-end, all the way through funding.”
While dealers continue to deal with inventory shortages, data show auto dealers are seeing more consumers complete transactions via online and digital platforms. According to Automotive News, Lithia Motors Inc. said sales through its online Driveway tool in December topped its monthly goal by 32%. Group 1 Automotive Inc. reported sales on its AcceleRide online platform grew 77% in 2021 to nearly 20,000 transactions.
For its part, Reid said Wolters Kluwer is seeing a 78.86% growth in digital financing transactions between 2020 and 2021, and a 38% growth from 2019 to 2020.
Jenn Reid
Look at the ‘Process’
The company is also seeing a 98% increase in digital transactions comparing Q4 2021 with Q4 2020. Digital finance is when a car shopper signs all contracts and financial documentation—either at home or in the showroom—via a digital signature as opposed to a stack of physical paperwork.
“What credit unions need to do is really look at what their process is,” said Reid. “Many credit unions have an online credit application to be able to get approved. And if they don't, they are several years behind. But most of them do. But I would say it's not just about approving digitally. I would say it's about sitting down and looking at your processes and workflows. I recently went to a credit union to finance my vehicle and they mailed me the paperwork.”
‘Turned Upside Down’
Meanwhile, COVID’s impact on digital retailing cannot be ignored, Reid said.
“If you look at what happened with COVID, there was more digital retailing being done in the dealership space, which meant that the deal was not being transacted at the dealership. It was being transacted over the computer or phone and off-site,” said Reid. “The general process has been turned upside down.”
What has also changed in the car-buying process, according to Reid, is consumers’ desire to have their payments quoted up front.
“They want that early in the journey,” she said.
To get to that point, Reid stressed again that the back-office has to change within many credit unions.
“Look at the back-end processes carefully,” she said. “Take a hard look. Get away from paper and have a built-in processes to verify the consumer. Make sure you have the documentation flow and the digital signature trail all the way through to loan completion. As I said, I think there's a process audit that's needed at credit unions.”
Dealers’ Changing Expectations
Reid said more auto dealers have always made a priority out of any lender’s approval times, but in the past that referred only to the decision. Now, that same prioritizing of speed is being sought through funding. She said dealers are looking at their lenders’ entire digital capabilities today and the criteria for who they do business with.
“The digital first mentality, it's going to be so critical if credit unions want to continue get their share of the auto lending market,” said Reid. “They're going to need to compete with the other technology innovations that are happening. More dealers are looking at how do you sign those contracts digitally.”
If credit unions don’t see the urgency in the need to be digital end-to-end in auto lending, Reid said all they need to do is look at the fintechs.
“Look at Carvana. That experience is really packaged together well,” she said. “That's what those online platforms are doing very well. You select the vehicle digitally. You can work your terms out digitally, and you can complete the deal digitally. Plus, the vehicle is delivered to you. It's hassle free, it's convenient.”
A Changing Definition
Moreover, those fintechs are also becoming is trusted by consumers, said Reid, cautioning credit unions to be wary of this loyalty shift. She explained the new definition of trust among consumers is not the lender being empathetic toward their financial needs and future, or even knowing they are in good hands. Instead, she said, the definition of trust is quickly becoming how well a consumer can be served digitally.
“The digital car-buying experience is now becoming a trusted experience,” explained Reid, who added the big bank auto lenders are leaving many CUs behind here, as well. “I think credit unions must focus on digital transformation—that is where they need to make their investments.”