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The importance of offering automotive leases

Lease options can expand credit union membership.

The automotive industry's rebound during the past year has been a huge boon for credit unions across the country, but many may be limiting their membership growth and income by failing to offer lease products that car buyers desire. Credit unions have long been heralded as a great lender option for people who need an auto loan, and more people have started to take advantage of credit unions' offerings in the past few years. Sageworks, a financial information company, found a 30 percent increase in credit union auto loan generation since 2012. 

Remarkably, many credit unions may be leaving potential growth and revenue on the table. By expanding into automotive lease products, they could cater to an even wider segment of the market.

The credit union advantage
People favor credit union-provided auto loans for many reasons. Credit unions have traditionally offered lower interest rates on loans, and they are able to provide loans to individuals who may not qualify with other lenders. The credit union experience prioritizes customer service and focuses on each borrower as an individual. This makes people more confident and comfortable as they make a large purchase, and allows the credit union to more accurately assess each borrower's ability to repay potential loans. 

"Automakers will probably sell 17 million vehicles this year."

The demand for auto loans is probably going to remain strong for some time, as automakers continue to report strong sales numbers. In an analysis of auto sales data for March, USA Today noted the industry is likely to sell over 17 million vehicles this year, which would represent the strongest showing for carmakers since the Great Recession. Clearly, credit unions need to tailor their offerings to take advantage of this carbuying​ trend. Leases provide a fantastic way for many credit union executives to expand their organizations' auto-related products. 

The fall and rise of credit union provided leases
Prior to the financial crisis that began around the end of 2007, many credit unions provided lease options for car purchases. Unfortunately, the recession made it very difficult for credit unions to recoup their investment on leased vehicles, according to Autoblog, and many one-time providers left the market. Now that the economy has recovered substantially from its previous low, credit unions can reenter the lease market and bring back their unique advantages to members who want to purchase vehicles. 

What's in it for credit unions?
Credit unions that provide leasing are able to access a much larger portion of the carbuying market. The Credit Union Times reported that the majority of car sales involve a lease, and organizations who fail to provide this option are ceding a segment of the market to competitors. 

"By offering leasing, they are no longer limited to the small market of consumers within traditional financing," said Robert O'Hara, vice president of strategic alliances at GrooveCar Inc., a company that provides credit unions with lease products.

Generally speaking, a lease will have lower monthly payment requirements than a loan for the purchase of the same vehicle. With leasing options, people are able to own cars they could not afford otherwise. By including these products in their portfolios, credit unions expand customers' car financing options. 

While Autoblog reported it is nearly impossible for credit unions to compete with special leasing offers sometimes provided by car dealers, the wider flexibility provided by credit union leasing options make it easy for members to customize the lease to their specific needs and mileage requirements. By working with third-parties who provide the leases, it's possible for credit unions to largely insulate themselves from the low resale values that caused a problem in the past. 

With car sales expected to pick up this year, expanding into the lease market could be big for credit unions.