There are strong economic indicators suggesting 2015 will show solid growth potential for credit union automotive portfolios. As reported by Experian Automotive, auto loan portfolios increased by 11% in 2014. The year ended with $866 billion in outstanding loan balances compared to $782 billion in 2013.
A major part of this growth can be attributed to leasing. Taking that into consideration, GrooveCar, which provides leasing products to credit unions and their members, conducted a survey of its automotive dealers. Dealers were asked specific questions on the leasing market including, what percentage of purchases represented leasing? How does that percentage compare to sales a year ago? What reasons were lease options chosen? Customer demographics and dealer’s objective in choosing a specific lender were also researched.
In our survey, which focused on New York, New Jersey and Massachusetts markets, we found 60% of business was derived from vehicle leases. When asked how this compared to the prior year, 38% reported they were seeing a higher demand for leasing.
According to Experian Automotive, “As auto loan originations continue to grow, lenders can stay ahead of the competition by using advanced analytics to target the right customers and increase profitability.” We found such opportunities for growth could be realized through leasing opportunities when reviewing the results.
There is no denying the credit unions have expanded their portfolios through auto lending, but in spite of the balance increase, market share has remained stagnant as most credit unions do not offer a leasing program.
In our survey, 58% of the dealers reported consumers are choosing lease options because of the lower out-of-pocket costs. Nearly 70% reported it was because of the attractive payment structure. Either way, consumers were able to choose a vehicle that would have been otherwise out of reach.
When you consider that the average lease term is 35 months, and the monthly payment is $408, it is easy to see how this option benefits each party. The member secures a lower monthly payment, the dealership sells more cars and most importantly, credit unions are able to compete in a very competitive market.
Our study reinforced national trends with demographics of lessees trending younger. The millennials, with a purchasing power of more than $200 billion annually, are estimated to be the largest consumer generation in history, according to Advertising Age. With peak buying power decades away, reaching these emerging big spenders will be tricky. It’s wise to spend time on this demographic as our dealer survey supports.
Increased leasing not only fuels your auto loan growth, it provides high quality credit and members who are likely to return once their lease has expired.
Robert O’Hara is vice president of strategic alliances at GrooveCar Inc. in Hauppauge, N.Y. He can be reached at firstname.lastname@example.org or (631) 454-7500.
As cited in:
Credit Union Times