By Ray Birch
HAUPPAUGE, N.Y.—As economic forces have led leasing to represent nearly one-third of all new car sales, is it time credit unions pay more attention to this financing option?
One automotive industry analyst thinks so.
“Look at the average price of cars,” said Robert O’Hara, VP-strategic alliances with GrooveCar. “According to Experian, the average amount financed for a new car increased to $29,551 in the fourth quarter of 2015, up from $28,381 a year earlier. In concert with that you also saw the average monthly new car payment go to $493 from $482.”
What the rapid rise in leasing shows, said O’Hara, is that consumers are saying they can’t continue to buy a new car for a monthly payment that will soon enough average $500.
Always About The Payment
“They are saying, ‘This is too rich for me,’ and the bank or credit union, despite some going with longer terms today, won’t go out 10 years on a loan,” said O’Hara. “Leasing has always been about payment and affordability. The average monthly payment on a lease is about $100 less than a loan payment.”
With leasing representing more than 30% of new car sales in 2016, up from 29% in 2015, 25% in 2014 and 20% in 2013, O’Hara said it is clear the direction consumers are headed with car financing. GrooveCar, which has seen leasing rapidly rise with its CU Xpress Lease product, had its best month ever for leasing in June, funding more than $95 million.
“That’s up from a previous high of $75 million, so a big increase,” said O’Hara.
Technology, in addition to driving up car prices, is also making the financing option more attractive as more consumers now see their cars as they do their other tech gadgets—disposable, noted O’Hara. He said Millennials, in particular, want a new car every three years to get new technology.
“They like the new gadgets, the Bluetooth—a lot of people are attracted to that,” said O’Hara. “Plus, Millennials are coming into their earning years and leasing gives them a way into a car, often with no money down, that they are able to afford.”
Another sign that the rise of leasing won’t stop anytime soon, said O’Hara, is the growth of leasing markets. O’Hara said that lenders and dealers in the non-major metropolitan areas are now turning more attention to leasing. He explained that typically leasing has been centered in major urban markets such Los Angles, Long Island, South Florida and New York City, where car owners find it easier to stay within their lease mileage limits due to driving shorter distances to work or to the grocery store, and from using mass transit.
“But we are now starting to get calls from credit unions in markets that have not been strong for leasing,” said O’Hara. “The dealers in these more non-traditional lease markets are also starting to push leasing more.”
O’Hara said the dealer interest in areas in which leasing has not been strong is an important sign that leasing’s appeal will continue to climb.
“Dealers in Long Island, for example, are really comfortable pushing leasing, as they have been doing it for a long time,” said O’Hara. “Where leasing is not prevalent, dealers don’t push it as much because they don’t feel as comfortable selling leasing. So lots of times, in these smaller markets, dealers don’t push leasing. But we see signs of that changing.”
Time To Come Back To Leasing?
A number of credit unions abandoned leasing prior to the recession, as they encountered issues with remarketing cars after they were turned in. O’Hara stressed that credit unions should look for leasing partners that not only bring them the business but remarket the car afterward—so there are no concerns over residual value.
“This way credit unions do what they do best and we do what we do best,” said O’Hara about GrooveCar’s CU Xpress Lease. “Where credit unions went wrong years ago is trying to do leasing themselves, and not having the expertise to manage that remarketing process. That is the biggest risk exposure with leasing, and we manage that process for them. We have bene doing leasing since 2007, and we have gone through many cycles of cars and trucks coming back off lease and every credit union we have worked with has been made whole on every car.”
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