Auto Financial Group, with its acquisition of Credit Union Leasing Administration of Canada, seeks to provide residual-based financing options throughout Canada, the companies said this month.
Peter Birks, president of Credit Union Leasing Administration of Canada, which offers a program to Canadian credit unions that allows them to participate in consumer and commercial auto leasing, will continue to lead the company as it integrates into Auto Financial Group, Auto Financial Group said in a statement.
The deal closed Aug. 1. Financial terms were undisclosed.
"We think we provide a true win-win-win relationship for the credit union. ... They can compete in a space where the banks can't, so they can diversify a little bit and grow their memberships," Birks told Automotive News. "The dealer provides a leasing service, which is going to grow more to try to move away from those long-term, 96-month finance contracts -- which we know are not the best thing for anybody and for ourselves."
"It's really another tool in their toolbox to help their customer move away from a long-term loan and provide a lease on any type of product," he said.
After 18 years of business in the U.S., Auto Financial Group President Tim Kelly told Automotive News that the acquisition was a "natural extension" for AFG, which offers an online, residual-based, walk-away vehicle financing product called AFG Balloon Lending.
A balloon loan is a type of residual-based loan in which the final payment -- or balloon -- at the end of the term is equal to the residual value of the vehicle. It also often has monthly payments comparable to lease payments, but the vehicle is titled in the consumer's name.
With AFG Balloon Lending, if customers are unwilling or unable to make the final loan payment, they can surrender the vehicle and walk away.
Discussions about acquisition prospects began in the second quarter of last year, Auto Financial Group CEO Richard Epley told Automotive News.
"Our short- and long-term goals are to grow the business and it starts with adding lenders to the platform," Epley said.
Auto Financial Group plans to work with credit unions that want to join the auto lending sector and credit unions that are already auto lenders about adding leases to their portfolios.
"Once we've done that, [we will] obviously take it out to dealerships and start expanding through dealers," he said.
Between 30 and 40 per cent of new vehicles financed in Canada are using residual-based financing, or leasing, Kelly said.
He said this is "a great opportunity to add membership, grow loans and increase their overall yield on their loans."