Breaking News! Leasing Yields Strong Results...For Credit Unions!

Many credit unions have expressed that competition for auto loans is fierce with many lenders vying for the same paper while offering historically low interest rates. This begs the question as to why would credit unions continue to heavily pursue that market when there is a sound alternative such as leasing!

Recent data has shown that record breaking numbers of Americans are leasing cars. In fact, leasing has hit a 7 year high and with industry statistics underscoring a 22.5 per cent growth spurt in each consecutive month in 2013.

When considering these numbers, the time has come for credit unions who do not offer leasing as an option to ask themselves, “Why not?” Not only are they not offering their members this product but they are also missing out on a source of revenue. In addition, credit unions are losing their members to banks or captives who do offer a lease product.

This was echoed by Chuck Price, AVP of Lending at Nassau Educators FCU (NEFCU) where he explained that the balancing role leasing has played at NEFCU, “….this business line has helped offset slower than forecasted growth in our conventional auto finance program and augmented the expansion of our overall loan portfolio. The lease portfolio consists of primarily A quality paper and the performance has been outstanding. When you combine this with the product’s payment driven financing approach, resulting yields exceed traditional auto loan spreads making the program more profitable than conventional automobile lending.”

Credit unions that offer a lease program have the unique opportunity to capitalize on the paradigm shift of lessee demographics and experience guaranteed incremental growth. Including leasing in their credit union’s offerings has served to increase auto loan balances explained Michele Dean, VP/COO at Bethpage Federal Credit Union. “by introducing a leasing product, we have diversified our auto portfolio, maintained high credit quality and achieve the desired growth in our auto loan portfolio balances.

Another item for credit unions who may be thinking of offering a lease program to consider is that few consumer finance companies offer lease options. Credit unions now have a rare opportunity to capture—yes, capture this untapped market. In contrast to traditional auto finance applications, the dealer does not “shotgun” lease applications because leasing is strictly about which lender offers the lowest payment.

Melinda Zabritski, Experian’s Senior Director of Automotive Credit supported this when she stated that “leasing has become very popular and it’s rising steadily. Right now, the average monthly payment on a lease is about $50 less than it is for buying a new car with a traditional auto loan.”

Higher car prices along with low interest rates and Americans’ tendency to buy vehicles based on the monthly payment help support the fact that U.S. auto leasing is at the highest levels in at least a decade and pacing the industry’s best year since 2007. In fact, CU Xpress Lease’s data indicates that year over year; increases for May, June and July 2013 are up on average by 218%.

In the past leasing was used as a tool for selling luxury vehicles but has become commonplace among hot-selling family sedans, such as Ford’s Fusion and Honda Accord because of lower monthly payments. Also, recent trends among younger buyers show they have joined the middle-aged mature professionals and have turned to leasing as a viable option.

Teachers FCU capitalized on this opportunity and have experienced tremendous growth in their auto loan portfolio. Nancy Orlando, SVP indicated that “Teachers Federal Credit Union embraced the opportunity to re-enter the leasing market, as it is a popular product in the Long Island area.” “Our members appreciate this product option, and our subsequent loan growth reflects that."

Unlike many traditional or newly created loan products or programs, leasing has proven to be highly profitable and sustainable. More importantly, trending analysis regarding lease market penetration along with consumer spending patterns reflects that leasing is poised for continued growth.

Can you afford to wait any longer?