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Ensure the Dealers in Your Indirect Program Make the Gradeauto dealer credit union

Not all indirect lending programs are built the same. When credit unions can keep constant watch over how various dealers they’re working with are performing, your institution can better mitigate risk. You are in control.

“As indirect buyers we all form opinions, for good or bad, about each dealership from whom we buy,” Roger Seegmiller, COO for Allegro Lending Suite, observed. “Often our experience informs our buying decision reasonably well, but why rely on feelings when we have so much data to tap?”

So, what are the key characteristics and data credit unions should be tracking to maintain a profitable and strong indirect portfolio? These are the critical ones:

  1. Number of applications submitted. If they aren’t feeding you leads, it’s doing you no good. Understand their business and the types of numbers you should expect from the dealer.
  2. Average credit score of applications submitted. When dealers are submitting credit scores below the range your institution is comfortable with, there’s no point. Make sure you set strict standards to avoid too many rejected loans.
  3. Number of applications funded. Again, if they’re submitting paper too low for you to fund or potential borrowers are walking away, it may be time for you to walk away as well. Myriad problems could lead to this, from sales tactics to an overly optimistic sales team.
  4. Average credit score funded. Ensure the mix is balanced with your credit union’s risk tolerance and diversification and earnings strategies.
  5. Look-to-Book ratio. Does the dealer have a lot of people kicking the tires but few buying? If the dealer isn’t closing the deals, it may be time to move on.
  6. Dollar amount booked. This will vary for different credit unions, but make sure it’s providing a proper ROI and is balanced with your loan and income needs.
  7. Average OTD LTV booked.
  8. Funding problem percentage. Less is more!
  9. Length of time problems have been occurring. Your credit union must determine at some point whether any problems you’re experiencing are worth the trouble or if it’s time to cut bait.

The Dealer Scorecard by Allegro Lending Suite helps you keep an eye on all of this with a simple dashboard. It can also feed information to alter the rates up or down that dealers may offer from your credit union based on their performance. They help you and you help them, but if they’re causing you some headaches regarding the applications you’re receiving or quality of loans it may be time to increase the dealer’s rates. And if the situation become untenable, your credit union can place the dealer on a watch list to prevent automatic approvals. Once scorecards are set up, that dealer’s score follows them through the entire Allegro system, no matter where you’re in it.

“So the next time a Finance Person is grinding you on the phone about how many good deals they’ve sent you this year, and how you should ‘stretch’ for them on the current deal, you can calmly spend 20 seconds reviewing this Dealer’s Scorecard and have an objective, informed and instant view of the dealer relationship to help you make the right decision,” Seegmiller explained.

He added, “The Scorecard may often confirm your experience and opinion about a dealer, but there will also be times where you are surprised, (for good and bad) and the data give you a chance to reconsider the dealer relationship and save you from doing a deal that really should not be doing.