WASHINGTON–After a record $59 billion in indirect auto loans and $78 billion in total lending on its platforms during 2022, Origence isn't just working to respond to what is a changed market in 2023, the company is urging CUs to react appropriately, as well.
The fast evolution is being driven by rising rates, new realities for auto dealers and credit unions, the growing sales of electric vehicles, a liquidity squeeze being felt by many CUs, and more.
And it’s all coming after a year in which many CUs had to do little more to generate loans than turn on the spigot.
“We had a record year as a company and it's all reflective of what's going on in the marketplace,” said Phil DuPree, chief revenue officer with Origence. “If the credit unions and dealers had a good year—and it turns in that we had a great year—what’s exciting for us is that credit unions broke some records both in new car and used car, year over year. So, the questions are how do you beat that and can you do that in ’23? There are some headwinds, such as rates, that have us concerned. But we expect most people will come to us to continue to help.”
Pricing & Rates
While the company is not involved in the setting of rates by individual credit unions, DuPree, who spoke with CUToday.info during CUNA’s GAC, acknowledged the concerns being shared by some that the auto lending marketshare gains credit unions are seeing are the result of underpricing their loans.
“If you look at largest lenders, they have some levers they can pull, and one of them obviously is rate,” said DuPree. “Credit unions typically are on the lower end of rate, but what we are finding and what we counsel is to move those rates. If they don’t move their rates when everyone ese is doing so, all the business will funnel to them and if they were doing $20 million (in loans), they will suddenly be doing $40 million, just because they have the rates. What we find is credit unions are slower to change rates. That is a big concern. They've got to be really active and change those rates to be competitive in that market, or they are doing to get too much or two little.”
DuPree, who spent 17 years with AutoNation before joining what was then CU Direct nearly a decade ago, further noted many lenders at CUs have never seen rising rates and may be unaware of how they need to react—and when.
Responding to a Changed Market
The rise in lending rates in 2023 combined with rising auto prices would certainly seem to preview a decrease in volume this year for both Origence and credit unions. In response, DuPree noted some of the biggest lenders are doing securitization participations, but other smaller players may decide to just pull back or even pull out of the market. That’s a mistake, he said.
“We really encourage them not to do that, because what happens is when you come back to the market in, say, six months, the dealers have gone elsewhere,” DuPree explained. “When you come back to the market you have to buy that market, you’ve got to give some reason to get (the dealers) to move. We tell credit unions, hey change the levers, change the rates, get to a volume that you can manage, but do not get out of the market.”
Talking Deposits
And while it doesn’t have offerings on the other side of the balance sheet, DuPree said he has been talking to credit union leaders about deposits, as many are feeling a liquidity squeeze.
“I ask them who is the chief deposit officer. You have a chief lending officer; if the loans aren’t there you’ve got someone you can go to and wring their neck,” he said. “With deposits, you haven’t had to deal with (the issue) for such a long time because the market had so much liquidity that you really didn’t think about it much. It will come back over time; you’ll get the margins, but with such a quick change it will take some time to level out.”
Meanwhile, Origence remains focused on speedy turnaround time on loan decisions and funding, DuPree said, as it’s a key driver of dealer satisfaction. That includes ongoing improvements in document process automation and more.
Stop Staring
“It’s really the whole analysis behind how can you process quicker and reduce the stare and compare, with the result being dealers get paid quicker,” DuPree told CUToday.info. “If you can become the preferred lender, it may not be because you offer the best reserve or the best rate. But if the dealer gets paid quicker, that’s enough to drive business your way. We do anything we can do—we have super-big ACH rails to do things really quick. But if it has to go through some manual process or the dealer has to wait, they will pick other lenders. Contracts in transit probably became even more important.”
Market conditions of the past few years have created a counterintuitive scenario where limited inventories, chip shortages, a pandemic and more have significantly boosted dealer profits and changed the market and auto dealers.
‘Dealers Always Find a Way to Win’
Phil Dupree
“What I’m amazed at, and I’ve been in this for a long, long time, is that dealers find a way to win,” said DuPree. “They found a way to win with inventories low and with rising rates. I don’t think the business ever goes back to the way it was. If a general consumer or member is willing to wait, that’s going to be a good model—just in time (delivery). It may not be three months, but if I can produce as needed what the members want, that is a good model where you will get good margins. Today, the margins are too high. There’s not enough inventory on the new car side, so used car inventory is inflated. We’re starting to see that level off. I don’t think we’ll ever go back to the glut.”
How Should CUs Respond?
How should credit unions respond to the changed market?
“They have to figure out with their dealer clients are trying to accomplish,” responded DuPree. “Any processes that need improvement, the relationship have always been important. It’s all relationships. Having great relations will help if things get tough. I really hope dealers will be able to pivot quickly enough. Today, they’re order-takers. The lack of inventory means you don’t have to sell. You can pick out that (car) or that (car) and its 10 grand over MSRP. There’s no negotiating. We’ll see how people get back into the selling skills.”
Putting a Charge Into Change
And there’s another big and growing player in the auto market that continues to emerge—electric vehicles.
“We are spending a lot of time looking at that,” said DuPree. "I think it changes (the market) from the standpoint that EV companies, if they can go direct (to consumer) and Tesla clearly has shown the marketplace wants it, the one thing they don’t want is a thousand different ways to work with an EV partner. We’re going to solve that with (Origence subsidiary) FI Connect, in which we’ll have one funnel where everything is the same and the credit unions sit behind it and get those loans. We’ll see that becoming more uniform. As we look forward, we want to make sure credit unions are at the top of that funnel. If financing is getting decided at the top of the funnel and you’re not in that consideration, that business goes away.”
Another Advantage
DuPree further expects Origence’s recently announced partnership with Tekion to also be a significant plus. According to the company, the partnership integrates CUDL with Tekion technology and positions “both organizations to streamline the automotive online shopping and financing experience while providing credit unions with new indirect lending opportunities.”
Additional details on that partnership were reported earlier by CUToday.info here.