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.