WASHINGTON - Auto lending has always been a staple of credit unions' loan portfolios, a barometer of the state of the health of credit unions' lending activity. But the lending landscape has changed - there are more non-traditional financial service organizations competing with credit unions for members' loan dollars and a growing list of lending alternatives available for members to consider. These alternative auto loan products, such as auto leases don't have to compete with CUs' loans for new or used vehicles. In fact, say credit unions that offer the product, they can be magnets that draw members to other CU services. Credit unions are relative newcomers to auto leasing. They began offering the product in substantial amounts in the last `80s. According to CUNA's Economic and Statistics Department, only 1% of credit unions offered auto leasing in 1985. That figure has continued to inch up since and by 1999 it reached 12% of credit unions. By the end of 1999, credit unions' auto loan portfolios comprised 39.4% of their total loan portfolio. That's down slightly from a 10 year high in 1995 and 1996 of about 40%, and is higher than where it stood in the early nineties, around 33%. Credit unions' auto loans are not a shrinking business for credit unions, said Bill Hampel, CUNA chief economist. In fact, just the opposite is true. Credit unions' auto loan-to-asset ratio over the 10 years increased from 21.2% in 1990 to 26% in 1999. "Car leasing and auto loans are not interchangeable products," Hampel said. "A member who's decided they want to lease a car is not going to change their mind and take out a car loan with the credit union just because the credit union doesn't offer leasing. They're going to take their business somewhere else. The auto leasing market is huge." Juli Anne Callis, chief operating officer for American Electronics Association CU in Sunnyvale, Calif. agrees that, "Credit unions can't convert a auto lease prospect to a loan prospect. They are compatible, synergistic products." Callis explained that the $675 million credit union began offering the products to its members in 1996 as a way to build up the credit union's secured loan portfolio. Our members were also inquiring about the product and whether we offered leasing, she added. "They voted with their dollar," she quipped. "They suggested we get a leasing product or they'd go somewhere else for it." AEACU's auto lease product has not damaged the credit union's auto loan portfolio. Since the first of the year, the credit union added about $63 million to its auto loan portfolio and about 10% of that is from auto leases. Callis attributes the success of AEACU's auto lease program to the credit union's tendency to be "cautious" about who it approves for car leases and it targets A and B paper. She stresses that auto leasing is not for everyone and reiterated for those credit unions considering offering the service that, "Auto leasing does not cannibalize new and used vehicle lending." She noted though that the implementation of a successful auto leasing program requires a staff that's savvy about auto leasing. It's a business decision that has to be considered carefully. Leasing is an attractive way to capture your members, she said, and it's also a way to attract new members. "Credit unions that don't offer auto leasing may be missing out on a lot of eligible non-members," Callis said. When USA FCU decided to offer auto leasing to its 67,000 members six years ago it decided to go with a "lease look-alike product" that lets the $389 million credit union keep the lease on their books as a loan and offer a contract that guarantees the residual value of the car when the term of the lease expires. When a car lease term expires, the member can choose to either turn the vehicle in; sell the vehicle on the open market and pay off the lease; trade the vehicle in and pay off the lease; or refinance the car with a regular car loan. Jim Reinhart, vice president of member services said the look-alike lease product allows the credit union's members to get all the benefits of a lease product with lower monthly payments. In addition, since no leasing company is involved in the transaction, the vehicle is completely owned by the member for the length of the term. As of May 31, USA FCU's had completed about $27.2 million in auto leases, which accounted for about a quarter of the credit unions total auto loan portfolio. Reinhart advised credit unions considering offering auto leasing to "look at it is just one more option for members. If you don't offer it they'll go somewhere else for the product." -
ekingoff@cutimes.com
