HAUPPAUGE, N.Y.—One auto industry expert is advising more credit unions to offer leasing as a means to keep the auto loan portfolio growing at a time when new vehicle sales are declining.
As car prices climb—now more than $33,000 for the average new vehicle—leasing is appealing to more consumers as a way to keep the monthly payment down, according to Robert O’Hara, VP of strategic alliances at GrooveCar, who said more CUs are planning to enter the leasing market in 2019—a good time to do so as a lot of leaseholders are coming back to market this year.
“Credit union loan balances are predicted to grow 7% in 2019, as reported by CUNA,” said O’Hara. “Auto sales are still compelling and a strong suit for credit unions. Make the push to members with a message they can clearly grasp and one they want. An area that can accomplish this is auto leasing.”
The peak for auto leases was in 2016 with the highest recorded volume in history, noted O’Hara.
“With the average three-year lease coming due in 2019, are many credit unions ready to provide a lease program to turn these lease deals over? This is an opportunity that should not be overlooked. Leasing, too, has been found to be crucial in deepening member relationships and increasing product-per-member ratios,” he said.
The Advantages
O’Hara said leasing offers the CU efficiency and growth opportunities, with a look-to-book ratio of 65%, compared with 15% for retail auto financing.
“In addition, one out of three Millennials prefer leasing, so it addresses the credit union’s desire to attract younger members,” said O’Hara.
O’Hara reminded that credit unions are actively pursuing younger members.
“The current data show the average age of members is 47,” said O’Hara. “While membership is predicted to grow in 2019 by 2.5%, according to CUNA, there are some problems with the age gap. Credit unions need to attract the younger member and solidify financial relationships with them. The good news is the credit union is in a great position to do so as Millennials and Gen Y are keen on what credit unions have to offer.”
Robert O'Hara
Beginning With Young Members
O’Hara noted how critical it is to begin relationships with younger members as they enter their prime borrowing years.
“Saddled with college debt, they will be entering the housing market later than earlier generations,” said O’Hara. “Credit unions will need to hone in on the specific financial hurdles they face and provide value to win this group.”
The question of increasing member stickiness and enhancing direct engagement, while improving product-per-member ratios, is always a priority for credit unions, and will be again in 2019, said O’Hara.
“Selling additional products to existing members is an effective way to increase profitability,” he said. “Many credit unions are finding success in partnering with members, providing valuable services that address their needs from offering financial wellness seminars to learning the basics on lending from auto loans to mortgages.”
Growth in Digital
O’Hara also expects a marked increase in CUs using digital advertising this year.
“Simply put, traditional marketing programs are not as efficient as digital,” he said. “This is an area that can be effective in finding savings. Credit unions looking to engage members, need to do so online. Traditional forms of marketing are costly and not as effective. Remember, growth is finding new ways to reach members, digital is the best way to accomplish this.”