Dealers are increasingly torn between the old-school F&I business of local credit unions and the new-school subscription models.
Gary Duncan, one of the owners of the Duncan Automotive Group in Christiansburg, Va., told Auto Finance News that some of his best business is coming from credit unions that can meet the needs of local customers through strong face-to-face interactions. At the same time, Duncan is exploring the latest industry innovations such as subscription models.
His auto group signed on with Flexdrive to offer consumers a competitive all-inclusive monthly price for car ownership that includes “everything except the gas,” he said. His target price of $600 to $800 a month is designed to target the local college population he serves.
“This business is changing at the speed of light,” he said. “With us being in a college town we think it is a perfect fit. Virginia Tech is the largest state university here, and we think it’s a perfect program for foreign students to be able to have a car with an all-inclusive service while they are here.”
Duncan Automotive will mostly offer used vehicles and maybe some new Honda models because otherwise, Duncan said it’s hard to make the program profitable and affordable to the average consumer.
“I don’t see how the manufacturers at $40,000 and $50,000 cars can make subscriptions work,” he said. “I’m anxious to see how that comes about because it looks like the sweet spot is around $14,000 to $18,000 used cars to make it affordable.”
Amidst all this innovation, he’s also focused on back-to-the-basics auto lending with the local credit union Member One. The credit union is “blowing everyone away,” including the banks and captives, Duncan said.
“Credit Unions are back the way it was when I started,” he explained. “They know the local banker, they know the customer, they are not just putting them in a computer to see what their score is. Also, they are looking at the potential to get this customer to make their deposits in the credit union.”
Across the country in Seattle, Shannon Harnish, President of Harnish Auto Family, is experiencing the same dichotomy as a dealership that increasingly relies on credit unions but has also signed up with the used-car leasing startup Fair as well as the online car sales platform JoyDrive.
“We’ve had some success with [Fair],” she said. [It’s] more like being a middle-man where we’re just a wholesaler, and I’m curious how it works with their residuals.”
Boeing is one of the largest employers in the area, and that translates into strength for the corporate credit union.
“During the recession, the credit unions saved us because the captives were going through issues — in particular, GMAC — and they didn’t have the buying power,” Harnish said. “We had a very difficult time in 2009 dealing with GMAC, and so Boeing Credit Union and Kitsap Credit Union found a little niche and were able to build their portfolio strong through those years, and it’s remained strong.”
As the industry changes, dealers are going to have to navigate these changes by having one foot in the future and one in the past. So far, Duncan said, “We’re excited about what it’s going to do for us in our local market.”