LEAP Financial has stopped originating leases due to lack of capital, the company announced yesterday.
The San Diego, Calif.-based vehicle leasing company serves consumers who have difficulty obtaining credit and works with them to either keep their current vehicle or obtain another one. The company’s product also enables customers who are unable to qualify for traditional financing to lease a vehicle.
Despite attempts to source capital over the past few months, the company has been unable to complete a transaction.
“We have not grown our volumes as quickly as we originally targeted due to low auto loan default rates and high used-car prices for repossessed vehicles,” said LEAP Financial CEO Tim Condon in a statement. “We still believe, however, that the consumer demand exists and that this will be an effective loss mitigation tool for lenders. Attracting capital with a unique model in a specific niche has been difficult.”
LEAP’s management is convinced that there are thousands of consumers who unnecessarily lose their cars to repossession.
“Hopefully, LEAP’s innovations have added to the industry dialogue on how best to deal with auto loan modifications and repossessions,” Condon said.
Part of the reason financing isn’t booming the way auto sales are in China is that the customers and credit attitudes are just different from those in other countries. Until 1987, there were essentially no credit cards in China, and the government has fostered a saver’s culture for decades. So people tend to buy outright or put down the vast majority of the purchase price.
Younger people are warming to more “conventional” financing arrangements like we have here, but the majority of buyers still don’t want to owe on a car. Or anything else. Debt has a certain social stigma that it doesn’t necessarily have here. Cash purchasing also often means a discount, the inverse of financing, which equates to paying more over the long term.
Because of the relatively recent mass adoption of easy credit, many buyers also lack a qualitative credit history.
Then there are the cars that most people can afford. Better off buyers can purchase western cars or western cars made in China – Citroens, Buicks, etc. But most buyers are buying Chinese-made cars, which are cheap to buy out of savings but may or may not hold up long term – I certainly wouldn’t want to enter into a 72-month term on some old Isuzu Rodeo or Daihatsu Charade clone.
But – the time to get firmly established is now. Because eventually, with consumer culture raging in China, people will develop credit histories and they will relax their attitudes about borrowing on big-ticket items like cars.