HAUPPAUGE, N.Y.—Are “myths” getting in the way of more credit unions entering the fast-growing leasing market?
Possibly, says Frank Rinaudo, senior vice president, GrooveCar Inc. and CU Xpress Lease, who emphasized that credit unions should be aware of the large segment of new car sales that leasing now claims. Last year, for the first time ever, leasing deals exceeded 30% of all new car sales.
“New vehicle retail consumer lease originations last year grew 7% to 4.4 million units,” said Rinaudo.
Rinaudo’s comments are being offered as part of a CUToday.info series examining “fake news,” or some of the “myths,” in credit unions.
Rinaudo sees the leasing climate again being very favorable in 2017, especially among Millennials. Rinaudo said that targeting Millennials with attractive lease programs not only builds the loan portfolio, but also attracts this sought-after demographic to the credit union.
“This is a savvy group who prefer leasing over traditional financing,” said Rinaudo. He said that Millennials are attracted to leasing not only as a means to keep the monthly payment down as car prices rise, but also a way to stay current on new vehicle technology, turning in the lease every three years.
Wide Demographic Appeal
But Rinaudo said that leasing’s appeal is growing with just about every demographic as consumers become more accustomed to leasing a car instead of buying it. He also said that credit unions that enter into leasing face less competition than they do in the traditional auto financing market.
What’s standing in the way of more credit unions offering leasing? Rinaudo said several “myths.”
“Historically, credit unions felt duped when it came to the risks associated with leasing. What looked good on paper, turned into a nightmare for many credit unions saddled with vehicles they couldn’t unload at the end of the lease,” he said. “Credit unions were often left with empty promises on leasing programs that were cumbersome to manage and simply didn’t work out. It became a costly endeavor. What remained was a lasting negative impression playing into the myth that leasing was a financial risk and not worth the trouble—a niche market where carpetbaggers came in after initial profits were made. As a result, leasing has been growing only slowly among CUs, while banks and captives continue to take bigger pieces of the consumer lease market.”
But that scenario no longer exists, pointed out Rinaudo, who said that credit union concerns over leasing can be lifted by choosing the right lease partner.
“Choose partner programs where the residual risk is removed and expertise is provided in the form of support services, designed to steer clear of trouble,” said Rinaudo. “Support services are important, since they let credit unions do what they do best, and let a third-party lease provider take care of all the leasing details.”
Rinaudo said that another myth is that the credit union must own the residual.
“There are programs that will take on the residual, wear-and-tear for the vehicle and other fees associated with leasing,” said Rinaudo. “Credit unions just need to look for them. And when they do, they should make sure the lease provider has been through several lease cycles with excellent results.”
Rinaudo said that it is a myth that leasing is right for every credit union, adding that CUs located in high population regions such as Southern California, the Northeast, South Florida and parts of the Midwest benefit most from leasing. Rinaudo said that in highly populated areas leasing can account for 70% of new vehicle sales transactions at dealerships.
“In these markets, without a lease program, credit unions are left competing for a sliver of the remaining (30%) sales opportunities. Leasing works in high density regions where the leaser is not going to put on high mileage each year. This may not work in rural areas where keeping mileage limits under 20,000 a year can be impossible,” he said.
Rinaudo reminded that companies that specialize in leasing programs project the value of the car at the end of the lease using valuation formulas. Payments are based on the percentage of the value that is leased, plus tax and related fees are built into the lease price.
“Not all vehicles should be leased because their value is so low that it makes the lease payment very high—there is no real value left for the pre-owned market. Leasing is perfect for certain makes and models that will hold value, are popular with consumers and contain high-quality options consumers will continue to want years down the road,” said Rinaudo.
Rinaudo reiterated that myths about leasing can become roadblocks to credit unions entering this growing market.
“With the right partner these concerns are nothing but myths, allowing the credit union to understand the risk, get around it, and embark on a path to greater growth and member satisfaction,” he said.
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