Blue Skies Ahead for Credit Union Vehicle Leasing!

By Mark Chandler, Vice President, Business Development
Blue sky with clouds and asphalt road reflected in side of car

It is certainly not earth-shattering news that there are some dark clouds in the future for financial institutions: A Wall Street Journal survey of economists says the average probability of a recession in the next 12 months is 25 percent. As the economy inevitably contracts, demand for borrowing will decrease and rates will come down to stimulate recovery. To succeed under these conditions, credit unions must ensure they are efficiently maximizing the return on every dollar they lend. One option that I am particularly bullish on for credit unions, and that can help blow away those dark clouds with significant blue-sky potential, is vehicle leasing.

Today, vehicle leasing is an increasingly powerful option in the automotive landscape: nearly one of every three new vehicles is leased¹, with five million units predicted to be leased in 2019. With the average cost of a new vehicle at an all-time high² and consumers feeling edgy about a looming recession, the lower monthly payments leasing offers are particularly attractive. And the growing influence of the usage-based economy on ownership is also having an impact: leasing crosses all demographics from seniors to Gen Xers – with those all-important millennials the biggest cohort.

But that is just the beginning of the blue sky: beyond delivering an auto finance product that current and potential credit union members are increasingly demanding, vehicle leasing’s benefits to a credit union’s overall business are significant:

  • Yield: Leasing yields are 60 to 100 basis points higher than typical auto loan portfolios
  • Time on books: For leases it far exceeds that of the average auto loan (the typical 36-month lease stays on the books for 32 to 34 months)
  • Low default: Our clients report that their lessees have a default rate of 0.02%, with an average FICO score of 740 – these are reliable “A” paper customers
  • CECL: For credit unions preparing for the new proposed CECL guidelines, it’s likely they’ll need to set aside less in reserves than credit unions focused solely on traditional auto loans
  • Flexibility: Credit unions can gradually elevate weighted yield at a pace that matches risk tolerance by replacing auto loans that drop off the books with leases

So, since vehicle leasing offers a great opportunity to increase membership and provide a more diversified range of services, deepens dealer relationships and, importantly, increases yield — every credit union must be offering vehicle leasing right?

Well, no and this means that the blue skies get even bluer! Remarkably, vehicle leasing penetration in credit unions is just under 2%. This means that the odds are, if you decide to add vehicle leasing to your suite of services, you will be the only credit union in your market offering it.

At CULA, we manage virtually every aspect of vehicle leasing, from compliance and residual value setting to tax remittance and vehicle remarketing. This way, your credit union team can focus on the things they do well, such as setting rates and establishing lending criteria, along with collecting payments.

With new car buying season revving into full swing, shouldn’t you be offering a financial service that one third of your membership is likely to want? Get rid of those clouds and see the blue skies ahead! Just contact me at [email protected] and I will get you set up.

Mark Chandler

Mark Chandler is Vice President, Business Development, for CULA. Mark is passionate about making sure his clients have successful outcomes. A longtime automobile finance expert, he has over thirty years of experience serving credit unions and their members by assisting them with their car-buying needs. Before joining the CULA team, Mark was most recently an executive coach and consultant in finance technology. Before that, he spent nearly 20 years at Autoland, then the nation’s largest credit union car buying service, where he concluded his tenure in the role of company president.

¹ Experian State of Auto Finance 29.07% of new vehicles are leased.
² “Average New-Car Prices Up 3% Year-Over-Year for June 2019, According to Kelley Blue Book.” 2 Jul 2019.