Friday, August 8, 2008

How will auto leasing cutbacks affect CUs?

MADISON, Wis. (8/8/08)--Credit unions should step up marketing their auto loan programs because several factors are working in their favor.

Cutbanks in the auto leasing market, home equity woes and big banks pulling back on lending are opening up more opportunities for credit unions.

Last month, Chrysler and Wells Fargo announced that they are pulling out of the leasing market. U.S. Bank announced that it would no longer accept leases for used cars.

Chrysler and Wells Fargo are leaving the market because securitization is dying, and used- car values are dropping, said Greg Gandolfo, Credit Union Leasing of America (CULA) vice president of business development, CULA is a provider of new- and used- auto leasing for credit unions.

With big lenders pulling out of the market, auto dealers are looking to smaller lenders for leasing. Leasing volume at CULA is up, Gandolfo told News Now.

CULA doesn't have a heavy portfolio concentration of any make or model, according to Gandolfo. The company's highest concentration is with Honda, Toyota and Nissan--though each one equals less than 5% of its total portfolio.

"With this kind of diversification, it is much easier for our remarketing team to sell off our lease vehicles in 15- to 25- vehicle packages directly to auto dealerships for their used-vehicle inventory, instead of sending them to auction," he said.

CU Direct Corp. (CUDL), which does indirect auto lending for credit unions, saw a spike in the number of auto loans it made last month--55,000--"the best month of the year," Tony Boutelle, CUDL president/CEO, told News Now.

The top vehicle funded by CUDL from January 2008 to June 2008 was the Nissan Altima, followed by the Chevrolet Silverado, according to CUDL data.

Besides leasing, home equity woes and banks pulling back on lending are increasing opportunities for credit unions to make auto loans, Boutelle said.

"It's an opportunity [for credit unions] to let members and dealers know they're there to make loans," Boutelle said. "Members need options."

The 72-month and 84-month auto loan programs were created to compete with leases, and now is the time to market them, he added.

About 60% of CUDL's loans are for new credit union members, while 40% are for existing members. As credit unions focus more on existing members, those numbers may shift, Boutelle said.

In general, auto leasing at credit unions is minimal--about 179 credit unions in the U.S. do auto leasing, Boutelle said, citing National Credit Union Administration data.

"Credit union leases represented less than 1% of all credit union auto originations in the first six months of 2008," Bill Meyers, CUDL communications coordinator, told News Now.

CUDL has looked into auto leasing for the past 10-12 years, holding study groups on the subject, but hasn't "gone down that path," Boutelle said. The corporation may choose to get into leasing if its credit unions want it, but will need to figure out how to mitigate the risk involved.

Leasing isn't for everyone, Michael Foti, vice president of lending, Prime Financial CU, Cudahy, Wis., told News Now. "It depends on the person's situation," he said.

Leasing can help make pricier cars, such as BMWs, more attainable. If consumers don't drive over the specified mileage, they can return the car at the end of the lease and receive a new one, he said. Leasing isn't a good option for drivers who frequently travel long distances.

Prime Financial leases through Donald Driver Motors, formerly known as CU Fleet Auto. The credit union receives about 15 to 25 new leases each month.

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