By Laura Glasser
Auto manufacturers are pulling the plug on lease programs to avoid steep losses on returned sports utility vehicles and other fuel-inefficient cars that have lost significant value because of record-high gas prices.

The carmakers are also getting hit for using overzealous lease terms to win customers. Chrysler, for one, offered lower monthly terms on a lease, with a higher buyout figure at the end. But that did the company little good when drivers returned the car, now worth less than expected because of its poor miles-per-gallon performance.

But a Long Island company says it sees a lot of opportunity in all that pain.

Hauppauge’s Groovecar said it plans to ramp up its lease-lending business to make up for the industry contraction.

The auto loan processor for credit unions already handles 400 to 600 leases per month, a number that should double with the new push, said David Jacobson, Groovecar’s chief executive.

Jacobson added that it’s the lease terms, not the leasing industry that hurt carmakers.

“We could never write a lease on these vehicles because the risks that Chrysler was willing to take meant we couldn’t be competitive,” Jacobson said.

Chrysler is hardly alone in losing in the game of risk. Ford, for example, said last month that it has already taken a $2.1 billion hit from leases and General Motors wrote down $716 million from the products.

“The manufacturers are going to be taking hits for the next few years because a lot of leased cars are still on the road,” Jacobson said.

Some big lenders, too, are feeling the pinch. JPMorgan Chase will no longer fund Chrysler leases and Wells Fargo has abandoned leasing completely.

Meanwhile, Groovecar continues to offer leases on the Jeep Wrangler and Jeep Grand Cherokee.

Farmingville-based Teachers Federal Credit Union, one of the participants in Groovecar’s leasing program, is also looking to get a boost from Chrysler’s exit.

“This is a product that, until now, we have not been able to compete in,” said Nancy Orlando, senior vice president of credit at the credit union.

Orlando said leasing as a whole has become a big part of Teachers’ business, with more than $50 million in leases booked through the first six months of this year.

Nassau Educators Federal Credit Union is also seeking a bump from Groovecar. But other credit unions, including Suffolk Federal Credit Union, said the risks outweigh the rewards.

Bill O’Brien, chief executive of Suffolk Federal said, “It’s enormously competitive and it will be even more competitive as you need more ways to move cars in a reasonably depressed car market.”

O’Brien added he wasn’t about to approve aggressive lending terms just to win over customers.

But Jacobson said Groovecar doesn’t plan to, and never has, taken risks. The company, in the leasing business for 14 months, will use rebates from the manufacturers as lease down payments, which drop monthly payments.

That’s standard operating procedure, he said.

“Just because Chrysler got out of leasing doesn’t mean we could be competitive. We can’t be as aggressive as they were. The rebates are the only reason the math on this works,” Jacobson said.

Laura Glasser can be reached at laura.glasser@libn.com.

ALEXANDRIA, Va.–The National Vehicle Leasing Association (NVLA) today announced its synopsis of the current condition of the auto leasing industry.

According to the experts at the National Vehicle Leasing Association, leasing is not dead. In fact, there is an opportunity to capitalize on the gap in the market that exists now that some major banks and the Big Three auto manufacturers have retreated from leasing.

Headlines in every major publication heralded this news, amongst other dismal economic data. The front page of the Wall Street Journal read “Chrysler Retreats on Leases.” Interestingly, the subheadline said “Move Could Dent Sales Further.” This raises an interesting point, one that the manufacturers are hoping won’t play out the way the NVLA believes it will. This stems from the simple fact that not everyone will want to sign up for a 72-month purchase finance in order to make their monthly payments affordable.

Where does that leave the independent vehicle lessor? Where do opportunities lie? And where are the pitfalls lurking? Residual values and underwriting are the vehicle leasing industry’s Achilles’ heel. Leasing is absolutely not dead. And, now more than ever, there is a growing need for the independent vehicle lessor. Here’s why:

• Foreign captives, banks and credit unions are ready to take up the slack.
• Independent leasing companies can provide financing options to dealers, especially domestic dealers who now really need a viable option for their customers.
• Trade cycles now, more than ever, need to be shortened for dealers to survive, and leasing is the only proven mechanism to achieve this.
• Leasing is inherently good for the consumer, affording them more options and less financial risk than ownership, especially when compared to a long-term finance agreement.
• Who really wants to keep a car for six years? A three-year commitment with an option to purchase is more desirable for most car purchasers.
• Pre-owned leasing, a staple of most independent leasing companies, is set to hit the big leagues, offering lessors better protection with lower residuals and lessees with the lower monthly payments they need.

Without independent vehicle lessors to fill this gap, how will domestic car dealers be affected by the recent moves in the marketplace?

• A lack of leasing options will send some customers to imports.
• Dealers will be forced to extend terms and trade cycles to reach saleable payments.
• Floor plan costs will rise.
• Increased trade cycles will further erode new car sales.

Without independent vehicle lessors, how will consumers be affected?

• Consumers that inevitably want to trade out after the lease will have negative equity.
• Fewer financing options equal less competition and higher costs to the consumer.

With the announced exit of a few major players from the leasing business in the past month, including captives as well as larger bank players such as Wells Fargo and Chase, funding will once again be at the forefront of our business challenges. Tight credit markets will not serve this industry well. However, discipline and sound business practices will allow those employing them to succeed, even in difficult times.

The NVLA has a host of dedicated funders that seek to do business with NVLA members, as these funders know that NVLA membership signifies a commitment to this industry, and to business excellence as a whole.