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In my previous blog post, I discussed how COVID-19 is impacting the auto lending industry. While industry analysts were not expecting 2020 to be a record year, with the widespread outbreak of COVID-19 in March, vehicle sales effectively dropped off a cliff, reaching their worst level, based on a seasonally adjusted rate since March 2010, during the Great Recession. Today, I want to provide some specific strategies your financial institution can deploy in order to supplement auto loan originations and increase loan volume.
One way to compete in this unprecedentedly competitive landscape is to focus on refinancing. Whether you are looking to capture new borrowers or recapture the loans of existing borrowers, refinance programs are a way to keep your financial institution’s lending portfolio strong. Refinance programs are not a new phenomenon, but now is a good time to evaluate and refocus your efforts on this channel.
The fact is, there are millions of prospective borrowers that are paying too much for their auto loans. According to U.S. News and World Report, consumers with FICO scores from 700 to 749 were paying an average of 4.73% for a new car loan and 4.98% for a used car loan as of August 2020. This indicates there is significant opportunity to audit your auto loan portfolio to conduct a targeted outreach to borrowers who could benefit from refinancing their auto loans. One way to tactically run a refinance campaign is to follow these steps:
Run a prescreen through one of the major credit bureaus by inputting your financial institution’s credit quality needs
Review the preapproval list
Deploy a targeted marketing effort that could include channels such as:
Online banking message
Unfortunately, many institutions struggle to deliver a strong refinance strategy. There are many internal struggles that typically come into play. One of the greatest challenges is from a resource standpoint. It is not always cost effective to have a full-time employee (FTE) focus solely on refinance opportunities, and it doesn’t necessarily make fiscal sense to hire specifically for that role. If your organization struggles with some of these common internal challenges, it might be advantageous to consider finding a partner to assist with some of the heavy lifting for you. There are numerous potential partners that all offer different levels of service and integration. They can provide access to financial ecosystems, vehicle marketplaces, and thousands of borrowers you might not otherwise touch. They locate and target market to borrowers who meet both your membership and credit quality needs. Ultimately, the advantage of working with a third-party loan recapture partner is to cast a wider net of auto loan borrowers, without the investment of an FTE.
Once you’ve decided to focus your efforts on building a strong refinance program, your next consideration is to determine how you will differentiate yourself from every other lender in your footprint. This is going to sound a little tongue and cheek, but figuratively speaking—or virtually raise your hand—if you’ve ever relied on the message of low rates and great service as your primary marketing strategy?
If we're all being honest, there’s a good chance your “virtual hand” is up right now. So, it begs the question, if everybody's using the idea of low rates and great service, how much does that really differentiate your financial institution from your competitors?
To illustrate the idea of differentiation, I’d like to go back in time to 2008 when the U.S. economy was still struggling through the Great Recession, and take a look at the Hyundai Assurance program developed by Hyundai Motors as a way to stimulate sales. Hyundai shifted their approach from talking about their vehicles to sending a message of reassurance. Sure, their vehicles came with great warranties, but so did many other vehicles of different manufacturers. Much like the idea of great rates and great service or cash, every other vehicle manufacturer was doing the same thing.
So, why not offer a different message? To stand apart, they offered coverage that had the consumer's best interest in mind—the Hyundai Assurance program. This program allowed consumers to return their vehicle to Hyundai in a time of need, such as loss of income or medical disability. After implementing the program, Hyundai saw an 8% increase in unit sales within one year, while the rest of the U.S.’s automakers saw a 21% decline
Much like 2008, the events that have transpired thus far in 2020 have led to decreased consumer confidence and declining auto sales. In order for financial institutions to remain competitive, it’s going to take a shift of messaging to help borrowers understand that you can provide them peace of mind during these uncertain times. SWBC’s MPOWER+ Vehicle Protection Program offers your borrowers financial security by allowing them to return their vehicle if they experience a qualifying event, protecting their credit rating intact. To learn more about the MPOWER+ program, click the banner below.
Michael Moore joined SWBC in 2013 as a Vice President of Business Development and was promoted to Senior Vice President of Sales in 2016. Mike has 20 years of experience in consumer lending and the financial institutions marketplace. Mike is responsible for overseeing a team of Account Vice Presidents and Account Managers, who serve our client partners throughout the Western United States, Alaska, and Hawaii. He holds a Bachelor of Science Degree in Economics from Santa Clara University and an MBA from Pepperdine University.
Recently, SWBC Financial Institution Group’s CEO, Mark Hein, sat down with Lauren Culp, publisher and CEO of CU Insight ...
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