HAUPPAUGE, N.Y.—GrooveCar’s CU Xpress Lease experienced its best-ever funding year in 2016, reaching nearly $1 billion in lease volume, the company reported.

Interest in CU Xpress Lease grew significantly last year, while at the same time the program celebrated its 10-year anniversary, GrooveCar said.

"Growth was impacted by market conditions in many regions of the country conducive to leasing. Credit unions also recognized the value the program provides,” said Frank Rinaudo, senior vice president of CU Xpress Lease. “Members, especially Millennials, moved towards leasing over traditional financing for reasons such as lower monthly payments, getting more for their money and getting into a new vehicle every three years. Credit unions, in turn, found they needed to be competitive in all facets of auto financing, not just settling for a smaller percentage. All of this had an impact on our growth in 2016.”

Leasing works well for credit unions in urban areas where mileage allowances can be met and where checking off all the other preference boxes leasing offers, over traditional financing, is realized, the company explained. Nationally, leasing accounts for one-third of all new cars financed. In select regions of the U.S. that percentage doubles, noted Rinaudo.

“In areas such as New York, Southern California, New Jersey and South Florida dealerships are reporting leasing accounts for 70% of the autos financed. On Long Island, where 90% of the 300 franchised dealerships are on the CU Xpress Lease program, representatives reported the same findings,” explained Rinaudo. “In 2016, CU Xpress Lease expanded into California, increased its penetration into New Jersey and the surrounding metro region of New York City, while developing a larger presence in the Philadelphia market.”

Despite leasing’s growth, GrooveCar contends that some credit unions continue to see leasing as risky. But Robert O'Hara, vice president of strategic alliances for CU Xpress Lease, said credit unions should not be concerned.

O’Hara said leasing is another growth area for credit unions and that GrooveCar eliminates the risk.

“We make sure the credit union can focus completely on what they do best, while we run the program,” said O’Hara. “Credit unions understand credit risk and servicing loans—this is what they are responsible for during a lease. We understand the lease market and remarketing, which includes setting residual values, the lease return process while maximizing each vehicle's resale value at lease maturity. Why would a credit union want to take on the residual value risk when they have little experience in this area?"

CU Xpress Lease is the only credit union lease program to guarantee the residual value at lease maturity, contends O’Hara.

“This value proposition coupled with the program's resources to build and maintain dealership bases, are some the reasons it has remained a favorite program for credit unions,” continued O’Hara. “It is understandable that some credit unions may be skeptical. Many credit unions were hurt with leasing programs that put all the risk back onto the credit union. This is not the case with CU Xpress Lease. Our program assumes the residual risk. We take ownership of the residual, the wear and tear, excess mileage, termination fees and other fees. In the 10 years the business has been operating and having gone through many lease cycles with credit unions, everyone on the program has been paid whole, 100%."

O’Hara pointed to the pace of used vehicle depreciation picking up over the past year, noting that it is imperative for a lease program to have forecasted this into the portfolio at lease origination.

"We projected years ago that used values would come down based on the significant amount of new lease originations with 36-month terms,” said O’Hara. “This surplus of used vehicles entering the market would have a direct impact on their future value, therefore we were both cautious and conservative when determining residuals, especially because we are responsible for making the credit union whole. Long story short, before you enter the lease market you need to understand the residual risk, how is it managed and who bears the expense if there is a loss."

In 2016, GrooveCar sales representatives and support staff were added to assist credit unions in managing every aspect of the program, O’Hara said.

 “Sales reps are responsible for building and managing the dealerships for each credit union, a built-in service that relieves the pressure of full-time management by the credit union. As financing options continue to transform to meet the financial goals of the member, CU Xpress Lease will be with its credit unions every step of the way to provide the tools in this ever-changing industry,” O’Hara said.

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