From the Summer 2009 issue of MERGE magazine

It seems business reporters have dusted off adjectives they haven't used in years in order to describe the current economy - "volatile," "unstable" and "turbulent" are among those that appear most often. The combination of the deepest recession since the 1930s and a vise-like credit crunch has served as a one-two punch to knock a lot of consumer spending to the mat, at least for the time being.

With all the bad news, it's easy to overlook the ongoing success of credit unions, and the creative ways CUs are finding to grow market share, while protecting their assets.

One of the main victims of the ailing economy, of course, is the automotive industry. According to Autodata Corp., February suffered the slowest monthly selling rate since December 1981; GM and Chrysler are both on the ropes and closing thousands of dealerships. Fear always slows spending, and it seems that even consumers who feel reasonably secure in their employment have been waiting for more of the economic dust to settle before pulling out their checkbooks.

"I've never seen a market like this in the 25 years I've worked in this industry," says Jim Sturdy, General Manager of South Florida Acceptance Company based in Pembroke Pines, Florida. "It's just too fluid."

"Sad things are happening to good people," agrees Jerry Liudahl, Vice President of Lending & Retail for Oregon Community Credit Union of Eugene, Oregon.

Yet, by sticking to what they do best, many credit unions around the country are prospering, some even growing in this market. Having stayed away from the riskiest investments as the economy swelled in its latest boom cycle, CUs now have funds for financing while many other lenders - including major banks - have pulled back.

Part of the reason for this is the perception that credit unions are safer institutions than even the biggest banks. Deposits are up.

"The public knows that one of the big benefits of credit unions is that we didn't take part in the kind of financing that led to all this trouble," notes Aaron Bresko, Director of Credit Portfolio for Boeing Employees Credit Union, based in Seattle, Washington. "We are still solid and we're still lending."

"We have a lot of deposits coming into the institution because people feel we're a safer choice," adds Liudahl. "At the same time, while our market share has remained the same, people are holding back from spending for major purchases like new automobiles.

"On the other hand," Liudahl continues, "The used car business is good. Just six months ago the ratio of new car loans to used car loans was running about 55 to 45, but today we are seeing that 70% of our vehicle loans are written for used cars."

For most CUs, this is the time to take advantage of their current position to grow market share, while minimizing the risk in this still-changing market. And taking advantage in this business climate means building on what CUs have already been doing for years - developing and maintaining positive relationships with their local dealerships.

"We've been doing cross-promotions with a number of local dealers," notes Liudahl. "We offer a rate cut to borrowers on the particular weekend that a dealership is holding a sale. In return, we're mentioned in the dealership's local advertising. I can't say we've noticed a huge increase in the number of loans we write as a direct result of each single event, but we do it primarily to build our relationships with dealers. One dealer group we work with was ecstatic with the increase in showroom traffic that resulted the very first time we tried it."

Liudahl knows what all savvy CU officers know - that positive relationships with dealerships mean measurable differences in the number of loans written.

According to the J.D. Powers 2008 Dealer Financing Satisfaction Study, "Satisfying dealers maximizes share of wallet: declining dealer satisfaction is accompanied by diminishing share of origination dollars." The study went on to measure just how much of an impact, and concluded that the cumulative market potential linked to positive dealer satisfaction means billions of dollars.

The impact of dealer satisfaction on the lender's share of the prime retail credit business, for example, is plain to see: those who earned a "delighted" rating received more than twice the business than those who earned a rating of "disappointed."

In the conclusion of its study, J.D. Powers & Associates clearly re-states the importance of the relationship between dealer and lender. "In tough times, leveraging trusted relationships is critical. The dealer-finance provider relationship is no exception."

"The most important thing we can offer dealers right now is consistency of program," agrees Bresko. "We listen to and work with them as partners. We haven't taken any programs away, and they know they can depend on us to be there through the bad times as well as the good. We'll be participating in a major annual sale event with the top 60 or 70 of our dealers this July," he adds. "It'll involve advertising, promotion, and great discounts for our members."

While CUs are positioned to solidify or even increase market share during the recession, attention must also be paid to the other effects of a bad economy, including the inevitable increase in repossessions.

"One of the most important things a credit union can do right now is manage its risk," says Sturdy.

This is important because an increase in repossessions can play havoc with a credit union's loss-to-receivable ratios as vehicles must be sold, usually at auction, to recover as much of the original investment as possible.

"The best way to know how you're doing on the front end is to know how you're doing on the back end," continues Sturdy. "Credit unions may not get all they could for their repossessions, usually because they haven't developed an effective remarketing program. If a car doesn't get sold the first week out, it just shows up at next week's auction. But every week a car sits unsold, it depreciates. Buyers know this and will wait several weeks before making a lowball bid, knowing that the credit unions will usually accept it just to get rid of the car.

"When repos started rising in our area, we started a re-market program. Our rep is now on our repo lane down at the auction. We managed to improve our resale value from 80% to 89% of clean Blackbook wholesale, and when you increase your sales by ten percent, it adds up to serious money."

Liudahl notes a similar effort by Oregon Community CU has paid off. "We're always looking at our remarketing program," he says. "Right now we're using a combination of auctions and a specialist in remarketing. We found that we've also been able to get a better result by featuring photos of the best resales on our web site."

More agile than larger competitors in the marketplace, credit unions can prosper even in a recession by finding creative solutions, and, above all, maintaining positive relationships with local dealerships.