Forget what you heard about why you shouldn't get into auto leasing. Changes in laws surrounding auto leasing have opened the door, according to one expert, and with auto loan demand flailing, leasing could offer new opportunities for credit unions.
David Jacobson of GrooveCar, a company that works with 22 credit unions and 320 auto and motorcycle dealers in the New York Metro/Long Island area, said leasing in the Northeast has lagged for years due to the Vicarious Liability Law. The law held the owner of a lease accountable if the driver of a vehicle got in an accident, which led many lenders to flee leasing, he said.
Repealed Law Changes Everything
The recent repeal of the law changes everything, Jacobson continued. While GrooveCar has offered 72- and 84-month auto loans for the past four years, those are starting to scale back as leasing again becomes a viable option.
"This part of the country is very different," he told The Credit Union Journal. "We did lots of business in 84-month loans because leasing was dead. Because of the Vicarious Liability Law change, leasing will be offered through credit unions in this area for the first time ever."
In addition to the former stringent liability standards, another factor that hurt leasing was an overly competitive marketplace. Jacobson said manufacturers were offering too large of a residual value on their autos in an attempt to make the monthly payment lower and encourage people to lease rather than buy. Eventually, the residual values became so high, lenders were stuck with cars worth $10,000 or even $20,000 less than the buyback figure.
"Years later, there is an opportunity for credit unions in leasing," Jacobson asserted. "Residual values are fair. GrooveCar is partnering with a company that specializes in remarketing-either getting the member to buy the car before the lease ends or sell it if the member turns it in. This will really change the leasing industry. Most credit unions either got burned by leasing or know a credit union that did. But, they need to do the research to discover the time is right."
Nationwide Expansion Planned
GrooveCar is preparing to expand nationwide as a consultant to credit unions and CUSOs, Jacobson said. Auto buying services are important, he said, because the auto industry is suffering. American-built cars, specifically, are in "big trouble." Jacobson said he knows some Chevrolet dealerships, for example, that are seeing their worst sales in history.
There is not much CUs can do about the regular economic ups and downs of the auto industry, but Jacobson said GrooveCar has created a "culture" where members in the area are using their credit union for every step of an auto purchase.
"We offer indirect lending, member education and a true buying service. Credit unions help their members shop, buy, finance and own their cars. We do clinics on auto purchasing at credit unions for members and prospective members, and if they buy, we give them a discount service card. Credit unions are known as the place for members to go."
