Will CU Auto Loans Get a New “Lease” on Life?

While vehicle sales have remained strong in the first four months of 2005, consumers may shy away from purchasing vehicles as interest rates rise and incentives are dropped.

 
 

As interest rates rise and automakers roll back the incentives that they offered through year-end, leasing is once again becoming popular among consumers. According to CNW Marketing Research, leasing reached a 20-year high in 1999 as 37.4 percent of all new vehicle transactions were leases. However, they dropped to around 20 percent of all new vehicle transactions over the past couple years. In the current rising rate environment though, CNW predicts leasing to reach 22 percent of the new vehicle market in 2005 and 26 percent by 2007.

Consumers are attracted to leasing because of lower interest rates and monthly payments. While they end up not having a vehicle at the end of the lease, most consumers who choose this option end up starting another lease afterwards. Dealers benefit from leasing because a leased vehicle counts the same as a new vehicle with regards to profit. Furthermore, dealers can count on someone who selects a two or three year lease to come back to the dealership faster than someone who buys a car and finances it for four or more years.

One area where automakers and financiers need to be aware of with leasing is estimating the residual value of a leased vehicle. In the past, the automotive industry has taken large losses because of inflated residual value projections.

At year end, credit unions held 1.06% of all vehicle leases receivable. This leaves them plenty of market share to gain if they choose to enter this market to generate new auto loans. Credit Unions can also use leasing as a way to develop new relationships with both dealers and their members.

The following list contains the top ten credit unions by leases receivable. These credit unions make up 73.4 percent of all leases held by the industry.

The Top 10 Credit Unions in Leases Receivable

Data as of December 31, 2004

 

 

 

$ Leases

Leases to

Loans to

 

Rank

Credit Union

St

Receivable

Loans

Shares

Assets

1

Credit Union of Texas

TX

$407,301,210

39.06%

78.95%

$1,491,161,158

2

Lake Michigan

MI

$322,404,166

36.68%

91.05%

$1,148,105,111

3

Navy

VA

$138,601,377

0.96%

82.09%

$22,927,744,968

4

Point Loma

CA

$73,136,180

16.22%

97.86%

$523,713,509

5

Telhio

OH

$67,447,317

19.84%

94.29%

$416,991,869

6

Keypoint

CA

$39,188,130

6.71%

91.62%

$711,598,331

7

TruWest

AZ

$28,373,799

8.02%

61.33%

$643,745,433

8

Affinity

NJ

$28,224,206

3.18%

76.60%

$1,294,007,036

9

Arrowhead

CA

$27,315,865

3.74%

96.21%

$844,656,027

10

Community Financial

MI

$22,443,030

8.12%

92.45%

$334,593,962

Source: Callahan & Associates

 

 

 

 

 

 

 

 

May 9, 2005


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