Credit Unions Rev Up Car Leases

Credit Unions Rev Up Car Leases

Most banks put on the brakes on when it comes to automobile leasing, but Long Island credit unions are hitting the gas.

Credit unions’ expansion in the car-leasing arena is a big change for dealers and borrowers, who often rely primarily on carmakers’ in-house financing options, including their preselected lists of approved finance companies.

This isn’t necessarily bad for customers: Carmakers and their partner financers often provide rock-bottom rates, since their shared goal is to facilitate leases.

But now credit unions are merging in to the leasing lane, sometimes offering more competitive terms than the carmakers’ established lenders. This creates new options for borrowers and can increase transactions in general, according to Ricky Alessi, general manager of Bay Shore-based dealership Atlantic Honda.

“(Credit unions) used to be the retail end of it, the finance end of it – now it’s the lease end,” Alessi said. “We have the opportunity to move more cars.”

Credit unions, in general, offer more flexible arrangements than traditional auto-lease lenders, further driving up potential transactions. Alessi said credit union-based leasing products boosted his business by more than 8 percent in 2013.

“That’s customers who might not have bought with a 36-month loan, but might buy through a credit union’s 39-month program,” he said. “I capture that customer.”

Credit unions, meanwhile, are happily cashing in. Bethpage Federal Credit Union, which launched auto-leasing programs in 2012, averages about $2.5 million a month in leasing business, and has had some months with as much as $7 million in leasing activity, according to Michelle Dean, Bethpage Federal’s senior vice president of lending.

Nassau Educators Federal Credit Union, Nassau Financial Federal Credit Union, Island Federal Credit Union and People’s Alliance Federal Credit Union have all started their leasing engines, part of a national convoy of credit unions doing the same.

Meanwhile, Hauppauge-based GrooveCar – a national online auto-buying resource for credit union members, providing pricing information, vehicle reviews and more – continues to expand its member unions. GrooveCar, which launched its CU Xpress Lease program in 2007, has welcomed Bethpage Federal and North Jersey Federal Credit Union into its fold, and is currently negotiating with a major California-based credit union, according to Senior Vice President Frank Rinaudo.

“Right now, the competition is minimal as far as lenders,” Rinaudo said. “There are far fewer lease-lender options for dealers to choose from when compared to traditional finance options.”

Moving into the leasing business is a double-win for credit unions, Dean noted, since borrowers must become union members to secure a lease. So, where banks see short-term customers, unions see long-term opportunities.

“This portfolio has performed favorably,” Dean said. “We would like to increase Bethpage’s auto lending presence and market share.”

Teachers Federal Credit Union, which tiptoed into leasing in 2007, has also seen that part of its business expand rapidly, according to Senior Vice President Nancy Orlando, who cited “exponential growth” as more members opt to lease rather than buy their cars and trucks.

These credit union increases are on par with national automotive trends. Insiders report that at least half of all national auto transactions are now leases; Alessi said his dealership’s lease transaction have increased from about 35 percent of all business five years about to 60 percent or more now.

“It’s a more affordable payment with a lease, and you get out of a lease in three years, as opposed to a five-year loan,” he said. “You don’t need all the big money down.”

All of this adds up to good news for the consumer. As leasing becomes the norm and credit unions spread deeper into this market – with enticing options like flexible annual-mileage limitations – it puts pressure on those automaker-approved traditional finance companies.

And the automakers, Alessi noted, are responding.

“They have credit unions fighting for their business,” he said. “So they’re getting aggressive and trying to have better programs.”