CU Resources Spotlight
GrooveCar, Inc.
Credit Unions and Auto Leasing…Yes, They Do Go
Together!
The Credit Union has always been a smart choice for
low-cost auto financing – the auto market recognizes the important role
that credit unions play…in fact, they are “Big Players” constituting an
18% share of the auto finance business in 2006 and near that level through
Q3 in 2007. With such a large share of business earned and dealership
presence demonstrated while squaring off with captive finance companies
(the manufacturers owned finance companies) and banks, why haven’t credit
unions flexed their goodwill and capital through leasing?
Leasing may be the missing link that enables credit
unions to be full-service lenders and participate in the component of the
auto business that represents 20-35% of new vehicle financing, depending
on the locale – New York and Southern California are the two leading
leasing markets with upwards of 50% leasing penetration. The attributes of
leasing for the consumer are very straightforward:
Driving more car for your money – with a lease, you
are actually financing the use of the vehicle and only paying for the
depreciating portion of its cost. Monthly payments can be up to 40% less
than loan payments - with an auto loan, you finance the entire purchase
price.
Low upfront costs – leasing typically does not
require a down payment and the best leasing programs do not require a
security deposit either. Taxes in New York State are based on the total of
the lease payments and can be factored into the monthly payments.
End of lease options – you always have the option to
purchase your leased car. At lease-end, you can purchase it for a
pre-determined price, called the residual value – the beauty is that you
have the option. If the car has maintained its value it may be smart to
purchase it, but if the car is worth less than the residual value you can
return it at the maturity of the lease with responsibility for excess
mileage and any excessive wear-and-tear on the car.
Benefits of offering leasing through the credit union
are plentiful as well:
Solid return on investment – the higher average
balance outstanding with a lease product can achieve larger interest
margins than a typical loan product.
Growing quality member base – leasing programs
through your indirect lending channel attract new members and leasing
demographics indicate higher credit scores.
Capturing the growth in leasing – your credit union
members are in the market leasing cars with increasing frequency but not
currently with you – becoming a full-service lender will capture this
quality share of business.
Credit Unions have not ventured into the leasing
arena due to concerns about the complexity of this business and dealing
with any value risk at the end of the lease – this mindset may be changing
as partnering with experts in the leasing business becomes more
commonplace. Credit Unions can establish a clear delineation of risks and
then devote their efforts to core competencies of credit risk and member
service while the lease experts manage the value risks.
Chris Meagher is Director of Sales and Marketing at Fusion Auto Finance, LLC,
who has partnered with GrooveCar, Inc. based in Hauppauge, NY. In
addition to providing many of New York’s largest credit unions with an
indirect lending solution, GrooveCar now provides a turnkey leasing
product. If you are interested in more information, you may contact
either Francine Rosen at 631-454-7500 Ext. 120
frosen@groovecar.com or Chris Meagher at 610-955-8179
cmeagher@fusionautofinance.com.
More information on the
company and their services.
January, 2008
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