Diligent readers of this blog may recall a rather odd situation I encountered while listening to music. No, I didn’t realize the connection between Wizard of Oz and Dark Side of the Moon. An ad on Pandora launched an investigation. It turned out to be a hunt for Space Coast Credit Union and their campaign, “Expose the Truth”. The marketing appeared to be quite smart; tease an idea which promotes a viral following, then present the information in a great reveal. Why were so many people overpaying, and what was this truth to be exposed?

Turns out, the credit union wanted to educate their members on the practice of rate markup. In an SD card-sized explanation (if we used a micro-SD card, we would be guaranteed to lose it under a fingernail or something…they’re so tiny! But I digress.), some lenders embrace a portion of the loan rate to offer compensation to their indirect dealers. As a result, the rates increase, and in some cases, this has caused discriminatory lending practices. SCCU, like most credit unions, compensate their indirect dealer partners through a flat-rate payment structure. One loan, this much money. The interest rate remains unchanged. It’s a different approach to the same problem; the dealers are doing the legwork to get the financing and should be remunerated for this task. In the interest of member transparency, SCCU disagrees with the use of rate markup, and that is ok. At the end of the day, you’ll always get the best deal on your financing if you contact your banks, credit unions, and other lenders directly. If it is determined that indirect lending (doing it at the dealership) is the best and easiest, then there you go.

So what happened to Expose the Truth? The campaign was pulled after objections were raised by NADA (National Automobile Dealers Association). Indirect dealers felt slighted by their partner, and appealed to their trade group, NADA. You can read the full details and statements from all parties; my intent is to provide commentary that may assist in the success of future endeavors.

I’ve heard it said that any news is good news, and in some cases, it may be true. I’m not sure in this case. I could be wrong, but it feels like the responses will only serve to create more member confusion in the market. Will rate markups be going away? Probably not. Do flat-rate dealer payments result in a lower interest rate for the member? I don’t know.

Do we fault Space Coast for their marketing campaign? I’m not. They presented an area where they believe to be superior to their competition. It was clever, and, given the response, spread as intended.

The part I wish to address is how to avoid such back-tracking in the future. At its core, why did the program need to be pulled? Its reception by their valued partners, dealerships, was not considered. I’m not here to market, of course, but our own company is working to develop a strategy on growing an indirect loan portfolio through strategic referrals. We understand that the dealers don’t want to feel slighted by their partners, and do deserve their fair share for the work they do. It’s a very challenging balance. Everyone needs each other to succeed…by keeping all parties in the loop, there may be ways to deepen relationships, grow portfolios, and sell more cars, while creating happy members!