Auto loans, which are historically less expensive to incentivize, received the most aggressive offers this spring from captive finance companies, with no-interest, seven-year loans driving new-vehicle sales in the early days of the pandemic. Leasing levels concurrently fell industrywide, according to J.D. Power data, and remain below prior-year levels.
The shift in incentives is one factor that hindered leases this year. Fewer sales, lease extensions and early closures of high-penetration leasing states such as New York and Michigan all contributed to the trend, as did limited new-car inventory and extensions on leasing contracts for many customers impacted by pandemic-related shutdowns.
Leasing likely will remain a largely captive-controlled business, though credit unions are eyeing opportunities to move into the spaces captives left behind.
Mike Buckingham, senior director of the auto finance practice at J.D. Power, said credit unions are finding more opportunities for leasing during this time — particularly on expensive vehicles without automaker subvention. Credit unions have a cheaper cost to fund and may offer flexible leasing options the captives don’t, Buckingham said.
“It’s not in huge numbers,” he said about credit unions pushing into leasing, “but they’re opportunistic.”
The Detroit 3, who were first to launch these incentives, saw leasing levels fall by double digits in April, according to J.D. Power. Leasing accounted for 12 percent of new-car sales for Fiat Chrysler, Ford Motor Co. and General Motors combined, a sharper decline than the 8.9 percent dip industrywide. That figure was still low compared with 2019’s 24 percent.
Even as the market rebounds, leasing levels at some of the leading captives and captivelike lenders remain low. In October, leasing for the domestic automakers was down 3.9 percent from 2019 levels, with industry levels down 3.1 percent year over year.
As local businesses, credit unions can leverage market data on existing customers that benefits dealerships, according to Dave Adams, vice president of lender/client experience at CU Direct.
Credit union market share has dipped amid the pandemic as larger lenders and captive finance companies gain further ground in new- and used-car originations. More risk averse than larger lending peers, credit unions have taken a bit longer to pivot to the new normal of coronavirus car sales — including remote purchase options and recalibrating decisioning processes.
Leasing “is not for every credit union, or for every market,” Adams said.
Credit unions considering a deeper dive into vehicle leasing should work with a partner, he said, to lend expertise on how to structure a program and set reserves.
One such company, Credit Union Leasing of America, had its best month ever this fall. It booked $150 million leases in October, a 31 percent increase from the same time last year. Leasing offers affordable and flexible car payments, desirable qualities amid the uncertainty of the pandemic, said Ken Sopp, president of Credit Union Leasing of America.
The company’s recent expansion has a lot to do with the uptick, Sopp said. The company works with 25 credit unions nationwide.
“Credit unions are more interested in doing auto leasing than in the past. They’re looking to diversify,” he said.