Northeast Credit Union adds leasing option to fight rising auto prices

To counter multiple trends that are driving up auto prices, Northeast Credit Union in Portsmouth, New Hampshire, is partnering with the San Diego-based Credit Union Leasing of America to offer a new leasing option.

The $1.9 billion-asset Northeast began talks with CULA to adopt the fintech's indirect leasing system toward the end of 2021, after auto loan delinquencies among non prime borrowers and refinancing activity saw significant increases industrywide. The partnership went live on June 1 of this year.

The credit union hopes that the new initiative will combat the effects of climbing interest rates on consumer lending markets and strengthen its position in the market, said Douglas Sites, vice president of indirect and direct lending for Northeast.

"Having us as a local community credit union being able to offer leasing through our local dealers is a real plus for the credit union. … If it makes sense for our members, it makes sense for us to partner with CULA to begin offering the service to our members," Sites said.

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Data from the National Credit Union Administration for the fourth quarter of 2022 showed strong performance in auto lending, with total outstanding loans increasing by $81.1 billion, or 20%, to $485.6 billion for the year. Growth continued into the first quarter of this year with a roughly $75 billion increase, but rising vehicle prices and fears of a possible recession curtailed lending activity in the second quarter, to only $50.2 billion.

Ligia Vado, senior economist for the Credit Union National Association, said that "pent-up demand from the COVID-19 pandemic for new vehicles" and "excess savings" helped fuel underwriting activity. But it's a short window of opportunity; Vado also expects that buyers will cool off before the end of 2023 as funds dry up.

Auto lenders are also fighting the impact of an ongoing strike by members of the Detroit-based United Auto Workers labor union. Workers are aiming to address concerns of wage inequities, profit-sharing agreements and other benefits at Ford, General Motors and Stellantis.

The strike has stalled the production of midsize vehicles, as experts from S&P Global Mobility say that the strike is meant to impact the companies' competitive position against Toyota's debut of its new Tacoma in the same market segment.

With all of these factors driving up vehicle prices and monthly payments, consumers may consider leasing as a way to offset those costs, said Mark Chandler, vice president of business development for CULA.

"With cars being more expensive now than they've been a long time … we're pounding our chests that leasing is a solution, that you can do a 48 to 60 month lease and have a lower monthly payment without messing with the ecosystem of lending today," Chandler said, adding that the ongoing UAW strike will bring used car values up as well.

Lenders will continue tightening loan requirements as changes in liquidity conditions and underwriting standards continue to evolve.

"While the UAW strike starts with [these] vehicle assembly plants, this signifies the beginning of a potentially long-lasting and damaging strike. …  It starts with daily losses of 3,264 units and could ultimately lead to cumulative losses reaching hundreds of thousands of units," Joe Langley, associate director of North American production forecasting for S&P, said in a press release on Sept. 15.

Using CULA's platform, vehicle leasing offers prebuilt by the credit union are positioned into participating dealerships' sales systems alongside subsidiary financiers owned by the manufacturers and competing financial institutions for consumers to choose at the point of sale. The application is then sent to Northeast's loan origination system through an integration with the credit union service organization Origence, where underwriters can approve or reject the potential lessee.

"Credit union auto loans are slowing, and I think that's consistent with tighter liquidity conditions for credit unions," said Curt Long, chief economist and vice president of research for the National Association of Federally-Insured Credit Unions. "I think, similar to a lot of other depositories, credit unions are in a situation where they aren't able to sustain the really strong pace of loan growth that they had in 2022."