Welcome to the first edition. Every Tuesday, one insight that matters for the people who run indirect auto lending programs.
Why Most Credit Unions Are Leaving Auto Lending Revenue on the Table
The average CU with an indirect auto portfolio over $200M has the member base, the dealer relationships, and the capital to run a competitive lease program. Almost none of them do. Here's what that silence is actually costing.
Let's start with a number that should bother you.
In New York State, approximately 30% of all new vehicle transactions are leases. In parts of northern New Jersey and suburban Detroit, the number runs comparable or higher. In South Florida's major metros, lease penetration consistently exceeds 25%. Across Connecticut, Massachusetts, and Pennsylvania the pattern holds. These aren't isolated pockets — they represent tens of millions of consumers spread across the markets where credit union membership is most concentrated.
And yet, the vast majority of credit unions operating in those markets have no lease program at all. Their members who lease — and many of them do — are financing through the manufacturer's captive arm. GM Financial. Toyota Financial. Honda Financial. Ford Motor Credit. Not their credit union.
That is not a minor gap. That is a structural revenue leak hiding in plain sight inside your auto portfolio. It exists whether your CU is headquartered in Hartford or Miami, in suburban Detroit or outside Philadelphia.
A typical indirect auto loan at a mid-size credit union carries a yield somewhere between 5.5% and 7.5% depending on the rate environment and credit tier. A new car lease, structured correctly with the credit union as lienholder, can generate comparable or better yield.
This is not hypothetical money. It is real transactions that your members are already executing, with creditworthiness you've already underwritten in other contexts, at dealerships you already have relationships with. The product exists. The demand exists. What's missing is the program.
The members who lease aren't leaving your credit union. They're just leaving your auto portfolio — every three years, reliably, to someone else.
The honest answer is residual value risk — and it's a legitimate concern. When a consumer returns a leased vehicle at the end of a 36-month term, someone has to take the difference between what the lease contract promised the car would be worth and what it's actually worth in the market. If the car is worth less than projected, that loss falls on whoever guaranteed the residual.
For a credit union, the prospect of owning that risk across a portfolio of hundreds or thousands of vehicles — subject to used car market swings, supply chain disruptions, and consumer behavior shifts — is understandably uncomfortable. It's the kind of concentrated, hard-to-model exposure that risk committees are right to scrutinize.
The problem is that most credit unions have never been offered an alternative. The indirect lease model they've seen — the one their peers who have tried it are using — typically requires the CU to absorb some portion of residual risk. That is an appropriate reason to say no. But it is not the only model that exists.
The core insight this newsletter will return to repeatedly: leasing is not inherently risky for a credit union. A poorly structured lease program is risky. The difference lies almost entirely in who owns the vehicle and who guarantees the residual.
In a properly structured indirect lease, the credit union is the lienholder — not the vehicle owner. The leasing company owns the vehicle and guarantees 100% residual reimbursement to the credit union at lease end. From the credit union's balance sheet perspective, the transaction looks almost identical to an indirect auto loan: a secured asset, a creditworthy member making monthly payments, and a known maturity date when the asset is liquidated and the credit union is made whole.
Under that structure, the residual risk concern that has kept most CUs out of leasing simply disappears. What remains is a secured auto lending product that serves members who are already leasing anyway, and creates a reason for those members to deepen their relationship with the credit union rather than another lender.
This is not a theoretical construction. It is the model that CUs across the Northeast, Michigan, and Florida are beginning to adopt — and one that works equally well for a CU in secondary markets like the Mid-Atlantic or New England where lease penetration is lower but still meaningful. The ones moving first in any market are setting the terms for their dealer relationships and capturing the members their peers are still sending to captive finance.
Next week: The real reason CU boards say no to lease programs — and the data that answers every objection. If you found this useful, forward it to a colleague. That's how this publication grows.