Credit unions have gained ground against other auto finance providers in the last several years. Today, credit unions took another important step forward by securing their second batch of manufacturer pricing incentives directly from an OEM.
In the latest boon for credit unions, Chrysler agreed to offer pricing incentives directly to credit unions, as part of the “Invest in America” discount program for credit union customers. GM also offers credit unions incentives.
Some details on the Chrysler deal:
* Credit union members will receive preferred pricing on all 2009 Chrysler, Jeep, Dodge and Ram Truck vehicles and select 2010 vehicles. The discounts are available regardless of where members gain financing. More than 2,000 credit unions in all 50 states have been promoting “Invest in America” discounts, driving members back to domestic automakers.
* The preferred pricing for credit union members will be 1% below the dealer invoice price. It will be a “no haggling discount.”
* The program is said to “bring savings” to 90 million credit union members.
To sweeten the deal, there are credit unions that offer short term balloon financing. There are many benefits to balloon financing for both dealers and consumers. For example, money down or trade equity reduces a 24 month term balloon payment by almost $50./mo. There are roughly 250 credit unions around the country offering balloon programs. It makes sense for a credit union to offer a balloon instead of a lease as the non profit status of a CU makes any depreciation credits useless. Balloons work much better in states where the sales tax is paid up front, and less well in states like CA where the tax is on the lease payment. At the end of the balloon term, the consumer can buy out the balloon with cash or finance without having to pay sales tax again. OR, they can sell the vehicle or trade it in. They can also turn the vehicle back in and walk away or make another purchase.
Credit Unions seem to have somewhat different buying habits than conventional banks, perhaps given the fact that they are not dependent on asset backed securitization.
It would be nice to see dealers get back to somewhat recession proofing their business through shorter term residual based financing rather than using extended term to lower payments for consumers.
Residual based financing through select credit unions is also available on late model pre-owned, a real sweet spot of opportunity for savvy dealers.
Valuable comment, David. Thanks.
David — How do delinquency rates compare on normal retail financing vs. balloon financing? And what kind of rates are offered if the consumer wants to finance the balloon — would they be comparable to the initial auto loan rates?