With auto purchases predicted to fall, should your credit union prepare for a loan growth stall in 2017?
Last week I shared an article from CreditUnions.com titled “Have We Reached Peak Auto?” It’s was a very well written article by Erik Payne in which he addresses NADA’s projections for slightly lower auto loan sales in 2017.
NADA is projecting total sales in 2017 to be somewhere around 17.11 million, compared to last year’s record breaking 17.55 million. Agreed, this is not a significant drop but it does represent a trend that auto sales have likely peeked in the US, at least for the near future.
Loan growth, specifically in the auto industry over the past 5 years has largely been driven by vehicle sales and the increasing average price of a car. Since 2012 auto sales have increased by over 30% and since 2011 the average vehicle price has increased by 12.6% according to Edmunds. For the average credit union who has celebrated loan growth in this area in the past you could start to see growth numbers level off.
Those who have worked with me know I am the champion for credit unions proactively engaging their members at a higher level. If you do see a leveling off due to slower auto purchases it’s because your credit union isn’t engaging your membership and looking for ways to improve their financial lives. Here are 2 ways, from a lending perspective, to do that.
#1 Improve your Funding Ratio:
Recently I provided consulting and training to a credit union launching a new eLending team. As part of my preparation I reached out to a handful of credit union contacts with eLending teams to gather some numbers. Having lead an eLending team myself I knew the critical measurement of success for the team wasn’t going to be in the number of applications received, or the number approved, or even in the loan volume closed. The critical measurement is in the funded ratio; the number of “Approvable” applications which result in a funded loan.
In my informal survey I found a great disparity between the handful of credit unions I contacted. The lowest funding ratio came in at 30% and the highest just over 70% with the remaining credit unions averaging around 50%. I also asked these eLending teams what measurement they were looking at to define the success of their process and their team. All but one gave me the same answer that loan volume is their critical measurement.
The one credit union not using loan volume as their critical measurement just so happened to be the one funding 70% of their approvable applications. They look at the funding ratio as an indicator of success. And not surprisingly their eLending agents produce much higher loan volume numbers than the other credit unions.
To improve loan growth in 2017 look to your credit unions loan funding ratio. If it’s below 70% my guess is your credit union is losing a lot of loans to the competition and eroding member confidence in the process.
#2 Train and Track Loan Recapture:
We have been talking about loan recapture for the past 10 years it seems. Every credit union knows they should be doing it and most credit unions say they are. Still though, I find that most credit union sales training is basic, focusing on benefit statements and debt protection products. Loan recapture represents a huge opportunity for loan growth and revenue.
Last year I worked with a credit union on two separate projects. The first project had me consulting with them on the launch of a new sales training program. We integrated this training into their operational training for service center and branch employees. One of the main areas of focus in the sales training platform for new accounts and lending was loan recapture. We built out very specific steps and strategies so employees knew how to identify loan recapture opportunities quickly on a credit report, how to calculate savings, and scripting to use to engage the member in the recapture sales process. The training was a success and well received.
Three months later I was brought back to provide consulting and training for their new outbound sales team. The focus of the team was primarily on loan recapture. The first lead source we used was recent online and branch credit pulls. As we analyzed random credit pulls from the past 6 months we noticed a happy trend. Those credit reports pulled after the branch sales training had very few loan recapture opportunities. Most had already been discussed with the member and the loans refinanced indicating to me that the training was a success.
Providing training specifically for loan recapture gives your credit union employees the tools they need to capture the opportunity while provide an amazing service to their members. Tracking loan recapture as a separate measurement will allow credit union leadership to identify areas for improvement and celebration of success.
Nick Brown is a credit union sales expert and proactive sales champion with 15 years of credit union sales and training experience. He provides consulting and credit union sales specific training for branch, service center, and outbound call center teams. Nick’s goal is to provide training that is simple, specific and which can be applied by any employee at any level.