How to Survive the Auto Inventory Apocalypse


We know COVID-19 was the catalyst for the snowball that hit auto and chip manufacturers  in the face over the last two years. The result led to a global semiconductor shortage and a reduction of vehicles produced by major auto manufacturers.

Even Volkswagen predicted there will not be an improvement this year in the chip shortage situation. And in China, where most of the semiconductors are produced, their Ministry of Industry and Information Technology expects the supply issues to continue for a long period of time.

Today, the average age of a vehicle on the road is 11.8 years.

Between new and used car prices soaring at a record pace—11.8% increase for new light vehicles and 37.3% for used vehicles—it’s reasonable to assume many vehicle owners will opt to stay in their current vehicles longer than ever before.
The combination of vehicle shortages and price increases has financial institutions thinking about new, creative ways to keep growing auto lending market share while identifying opportunities to generate non-interest income.

Auto Lending Education for Members and Beyond

Like any good business plan, establishing a healthy pipeline of potential borrowers is key to positive growth of your financial institution’s auto loan market share. It starts with communication. Communicating with all your account holders, regardless if they have an auto loan with your institution or not, opens up your target audience pool for financial education messaging. Over the last few years, many credit unions have leaned into the financial health education approach to engaging their member base. It’s a good approach and a great opportunity to weave in auto loan education into your message mix.

While many people know credit unions offer auto loans, there will always be a group of people that need to be introduced or reminded that your credit union offers competitive auto loans. When communicating to both members and non-members, you can always share articles from thirdparty resources to enhance credibility to your auto loan prowess.

Consider the following financial news sources as great third-party validators to help improve awareness of your auto loan offering:

Mine Your Data to Deliver Timely Messages
As a financial institution, you sit on a treasure trove of information your teams can use to help personalize communication to your members.

Here are some ways you can leverage information currently in your databases to help deliver relevant and timely auto loan messaging to your members.

Identify current borrowers who are six-to-eight months away from paying off their loans and begin communication messages to them about your institution’s rates, auto buying programs available, or ancillary products that’ll keep their vehicle on the road longer.

Another approach is examining when your borrowers typically trade in their vehicles for  another car. You could even break this out between new and used auto loan borrowers.

This analysis will give you greater insight to determining when your borrowers, on average,  trade up for a new or used vehicle. Your team can then turn this insight into  actionable information by communicating messages about your auto loan program at the  ideal timeframe when they get the itch for a new vehicle—giving your institution the  opportunity to re-capture the loan.

Diversifying Your Non-Interest Income Opportunities

Offering borrowers your point-of-sale products at the time of loan origination is the  traditional approach to non-interest income services. While advances have been made to  how Major Mechanical Protection (MMP) or Vehicle Service Protection (VSP), and  Guaranteed Asset Protection (GAP) products are packaged, “how” these products are presented to borrowers has largely remained the same.

Consider the fact that these products are offered primarily at the time of origination. While some MMP offerings can include a digital component for post-loan origination conversion, most credit unions rely on having loan staff cross-trained in sales to deliver the ancillary service pitch.

So what can institutions do to diversify the ways they deliver noninterest income services? Try new income generation tools to provide a fresh approach your borrowers can relate to  that are low maintenance and can be presented at any point during the loan lifecycle. What  is this magical new product? It’s called healthCAR Vehicle Protection, and it’s an  affordable, pay-by-month vehicle service protection plan that borrowers can enroll and file  claims digitally.

Let’s see how healthCAR can transform your non-interest income opportunities and why  this program is very attractive for multiple audiences at your credit union.

How does healthCAR Help Your uto Lending Program?

From what we learned earlier in this guide, people are keeping their vehicles longer than  ever before.

Again, this is due to the new-vehicle shortage leading to higher new vehicles prices, which  in turn is creating greater demand for used vehicles, thereby increasing prices in the used  car market.

Individuals and families are keeping their vehicles longer, so ensuring their car or truck is  operating properly is a high priority.

The current and future auto market is perfectly positioned for a service like healthCAR to  serve as a simple way to provide yet another valuable service to members at the right time.

What makes healthCAR special?

Your borrowers will benefit from a self-serve digital enrollment process they can complete  at any time during their loan’s lifecycle. Two of the most exciting features that contribute to  healthCAR’s fresh take on vehicle protection in today’s economy:

Many consumers are use to the subscription-based model many companies use for their  services. All the streaming services like Netflix, Disney+, Spotify, YouTube, and more have  subscription offerings and have conditioned consumers to this monthly pay model. healthCAR’s monthly pay structure is perfectly tuned to be relatable to how your members  experience other services in their lives. The traditional MMP and VSP pay structure  generally is either payed all up front during loan origination or rolled into the price of the  loan, which can cost in excess of $1,600 or more. With healthCAR, borrowers experience a  simple, low monthly payment starting at $53 to start plan protection.

Some consumers do not have $500+ in their savings account to cover the cost of an auto  repair. With healthCAR, the member pays a $100 copay (and their monthly payment) and  their repairs are covered. For some, this may make the difference between staying in their vehicle or walking away from it.

Who’s the ideal healthCAR customer at your credit union?

Anyone with a vehicle 20 years and younger can take advantage of the program. Traditionally, financial institutions will only offer MMP products to members with an auto loan through the same institution. Now, with healthCAR, you can offer this program to all  members, even if they have their loan at another institution or have no loan at all. Imagine that, collecting non-interest income on a member who didn’t even originate their loan with you. What a great way for your institution to generate income AND provide a valued service to your member. Plus, that gives you a future foot in the door to try to re-capture a loan  down the road during refinancing or when the member is ready for a new vehicle.

Earlier, we shared some tips on using data to segment target audiences. This is where that  exercise can pay dividends. Now that you have some audiences grouped, you can begin  communicating with them about a fresh new vehicle protection program to keep their car  or truck on the road.

Ancillary Benefits that Go Beyond

healthCAR offers great roadside assistance for the contract owner and goes beyond to  extend these benefits to dependents of the contract owner, even if they’re a passenger in  another non-covered vehicle. A dependent driving a covered vehicle enjoys flat tire changes, jumpstart, lockout services, and if completely broken down, healthCAR will tow  the vehicle to a safe location. It’s a pretty great ancillary benefit that is perfect for high  school and collegeaged dependents who generally drive older vehicles.

As you can see, adding a program such as healthCAR to your non-interest income  repertoire aligns your financial institution with a service that adds value, is positioned well  for the current and foreseeable auto market, and is a fresh take on a vehicle protection plan.

The toughest part of the tightening auto inventory is that it is 100% out of our direct  control. And because of that fact, financial institutions need to find creative ways to offer  services that bring value to a member.

In SWBC’s 2021 Economic Review and 2022 Forecast for Financial Institutions white paper,  Senior Vice President and Chief Economist, Blake Hastings noted that, “Softening loan  demand and tighter net interest margins will create greater need to financial institutions to  rely more on fee and other forms of non-interest income.”

In addition to traditional point-of-sale products, healthCAR is the vehicle protection  program your account holders will be thankful they have, and your lending team will  appreciate a new, digitalfirst program that opens up income generation opportunities  across the entire credit union.

About Author:

Tony Streeter – As SVP of Marketing for the Financial Institution Group, Tony Streeter is  responsible for product marketing across all lines of business (predominantly auto and  mortgage risk management) geared toward the financial institution market. Over his 30+  year career, Tony has led new product development, Ecommerce platforms, digital  marketing, patented various business processes, and has had 20+ articles published across  IT, Marketing, Manufacturing, Financial and other topics within industry  publications.

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