Is your credit union thinking about starting a lease program? Well, you picked the right time. The climate for auto buying holds a lot of opportunities especially with leasing which is expected to stay on the same pace with buyers in 2017. Understanding the lease market is one of the first steps towards benefiting from this avenue of growth. In the first six months of 2016, over 2 million cars and trucks were leased, accounting for 32 percent of new-vehicle sales in the first half of last year. New vehicle sales are expected to stay above 17 million in 2017, according to NADA, with the second half of the year experiencing a surge. With new vehicles expected to roll off lots in similar fashion this year while leasing continues its steadfast appeal; why isn’t your credit union offering this borrowing alternative to members?
Where your credit union is located will determine the rate of success leasing will have with members. Regions of the country where leasing is outpacing traditional loan structures are in high-density population areas, and around large cities. Location benefits leasing by keeping within mileage restrictions, where driving as little as 12,000 miles a year, is all a driver may need. Lease deals are enticing and appeal to members who may not have considered this option before.
Credit unions competing for auto loans in these regions should consider how not having a lease program is affecting their growth strategies. When dealers are reporting upwards of 70 percent of new vehicles are being leased, this leaves a very crowded 30 percent of the market to vie for.
Leasing started its meteoric rise after the Great Recession ended in 2009, with Millennials leading the charge. While leasing was popular before the recession, during the recovery the numbers really climbed to record levels. With the average vehicle priced at over $35,000, with monthly lease payments significantly lower vs. traditional financing, the appeal is obvious.
Offering a lease program provides your credit union with the ability to attract members with another option to traditional financing. Leasing also provides your preferred dealer network with the ability to attract new customers with low payment structures. Auto dealers have fueled the attraction to leasing with lease specials and monthly payments consumers couldn’t otherwise obtain. Being a partner with your dealers will help you both serve this rising millennial population who look to get into a new vehicle every 2-4 years. A good collaboration between you and your dealer will also help to boost business coming back to you.
Leasing has tremendous rewards and some risks depending who you partner with. The rewards are serving your members with what they are looking for and building your portfolio, the risks are getting stuck with the vehicle. One of the reasons credit unions have steered clear of leasing is the residual value of the vehicle has come back to haunt them. This can be avoided completely when your credit union partners with a third party who will assume all the residual risk and fees associated with leasing. When researching, ask your potential partner: “How many lease cycles have you been through? What fees am I responsible for? What program support do you provide? Am I responsible for collecting any lease-end fees? What about wear-and-tear?” If the answer is yes to any of the questions, move on. Any potential partner should provide support services that include a hands-on account management. In other words, partner with a group that will completely oversee and manage your program while assuming all risk. Doing so secures your credit union’s ability to offer leasing safely, for the long term.
Working the Program
Providing an option to conventional auto financing will go a long way with millennials who continue to prefer leasing. Build trust with this segment, provide an understanding of the loan process and don’t rely on strictly selling based on rate. Instead, provide members with costs on different loan structures, over the life of the loan. The borrowing process can be further explained through marketing strategies, especially online where millennials are most likely to seek out this information. Use your auto resource to demonstrate a keen understanding into their needs. Remember 97 percent of car shopping begins online, make sure your relevant at each step to meet their needs.
As a credit union, you can check off all the member’s prerequisites for car shopping and become “the go-to” resource if the right steps are taken when setting up a lease program. Remember, to reduce or eliminate risk entirely requires knowing what to look for when establishing a program. Then ask yourself is settling and not offering a program more detrimental to growth?
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