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CU System
Auto leasing could be great opportunity for CUs
MADISON, Wis. (4/8/10)--Credit unions could have a great opportunity in consumer auto leasing this year, according to a credit union auto leasing expert. Terry Bowdler, CEO of Credit Union Leasing of America (CULA), said there could be a significant increase in credit union auto leasing, provided a few things happen. First, interest rates will need to rise. When that happens, the payment differential between lease and loan payments will be magnified--and credit unions could have more opportunities to lease if those payments are more attractive than loan payments. Second, auto manufacturers and their finance arms will have to stop “playing with money” and offering leases at low rates--like 0% or 1%. Those tactics are hurting credit unions because they are undermining credit unions’ rates. A good insurer of residual risk also will need to emerge. Residual risk refers to factoring in what the value of a vehicle will be at the end of a lease term. If a consumer wants to purchase a vehicle for $30,000, and pays $15,000 plus interest to lease it--the risk will be whether or not the car is worth the amount left at the end. If those three events happen, “credit unions are in a great position,” Bowdler said. The opportunity will not happen in the short-term--six months--but credit unions will likely have a great consumer leasing opportunity within the next year and a half, he said. Credit unions do, however, have a great opportunity now to offer commercial leasing--which is leasing to their small business owners, he added. Kiplinger.com noted Monday that auto leasing could be making a comeback this year and that credit unions were stepping up leasing. Of the roughly 12 million new cars that will be sold this year, about one-fifth of them will be leased, Kiplinger said (April 6). About 17% of vehicles were leased annually before the auto market bottomed out in 2008 and 2009, the publication said. In general, credit unions lease about $200 million worth of vehicles each year. CULA hasn’t seen an increase in leases, but while the numbers may be down--they are positioned to go up “and then some” in the future, Bowdler said. For credit unions considering getting into--or getting back into--auto leasing, Bowdler suggested that they perform a great deal of due diligence on their insurer for residual risk. Many credit unions outsource their leases to other providers, so they need to research third party vendors, he said. About 3% of credit unions offer auto leasing, according to the Credit Union National Association. Many automakers halted leasing in 2009 when vehicle sales dropped. However, some lenders--like GMAC--are ramping up their efforts, Kiplinger noted. Regarding auto lending in general, credit unions gained auto lending market share in 2009, according to CUDL, an indirect auto lender for credit unions. Credit unions ended the year at 22.2%--a 3.8 percentage point increase in auto lending market share, CUDL said. Credit unions “gained a lot of shares from captives,” which dropped to 21.7% in 2009 from 25.4% in 2008, according to Andrea Salgado, CUDL market research analyst, who presented CUDL’s Auto Lending Trends & Credit Union Analysis webinar. Credit union auto loan penetration has been at 17% for the past several years. Auto loans make up about one-third of credit unions’ portfolios. “That figure hasn’t changed much,” Salgado said. Indirect loans increased 2% by $1.4 billion at credit unions. Indirect delinquencies went up 1.45% and charge-offs 1.74%. “That’s still below the numbers we see at banks,” Salgado said. She also noted that new-vehicle sales dropped 20% to 10.6 million for 2009. Used vehicle sales were at 35.5 million, down 3% from 2008. In January and February 2010, new auto sales were up over 2009 at 5% and 12%, respectively. CUDL credit unions were the fifth largest lender of auto loans in 2009, moving up from being the seventh largest lender in 2008. Top brands financed on the CUDL platform as of Dec. 31 were General Motors, Chrysler, Ford and Toyota. About 1,467 auto dealerships closed by the end of October--the most since the 1950s, CUDL added.
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