In 2015, the auto industry witnessed a 5.7 percent surge in new car sales. Of the 17.5 million new cars sold, 30 percent of were leased, which means almost one-third of all cars in the U.S. are leased. However, only three percent of those were pre-owned vehicles. Considering the used car market is bigger than the new car market, a huge gap needed to be addressed, which led to the founding of MotorEnvy.
MotorEnvy founder Michael Chuang wanted to lease a used Porsche, but since it was a pre-owned vehicle, the dealer refused to lease it to him. One of the biggest factors in auto financing is value depreciation. New cars depreciate in value much quicker than older vehicles. Because of that, dealers are less willing to lease a pre-owned vehicles. And auto manufacturers do not want to promote leasing.
Headquartered in New Jersey, MotorEnvy was founded in 2015 on the concept of electronic trading of fixed income products. The company was later sold to a larger trading technology company.
Chuang’s resume includes experience in high profile investment banks like UBS and Lehman Brothers, where he served as director of MBS/ABS sales, and vice president, respectively. MotorEnvy is funded solely by Chuang, but they are in the nascent stages of monetizing their portfolio by selling leases to other lenders and debt investors. The company has also recently completed a funding round, “so we have officially started to monetize the portfolio,” Chuang said.
Motor Envy is the premier leasing company focused on luxury pre-owned vehicles. It has leased a broad range of cars from classic vehicles to swanky new sports cars. Some of the cars are only three months old, because as soon as a car has a previously-titled owner, the manufacture’s financing company is no longer willing to lease it.
Some reasons why more customers are going for leasing over buying and why MotorEnvy is becoming increasingly popular among the masses include:
- Value to the consumers – Since pre-owned cars depreciate less, it makes great sense to lease them out. Payments on MotorEnvy’s vehicles can be 20%-30% less than on new vehicles.
- Smaller commitment – The company provides leasing for tenure as low as one year and at flexible terms and conditions, hence MotorEnvy is very popular among auto enthusiasts who prefer to switch cars more often
- Latest – Most of the consumers have the same craze for cars as they have for mobile phones. They only want the latest one. Hence 1-year lease commitment is more suited and preferred as compared to traditional three- or four-year lease agreements.
MotorEnvy is concentrating on two different verticals of leasing and therefore has two different distribution channels:
- Speciality Lease Finance – This is the primary business whereby MotorEnvy leases pre-owned vehicles to consumers. There are three ways to get a lease from MotorEnvy:
- Leasing from Dealers – If the consumer finds a car with a MotorEnvy dealer, the finance manager of the dealer will be able to provide lease quotes on MotorEnvy’s behalf.
- Leasing from Private Parties – Just provide certain relevant information and MotorEnvy will pre-approve the lease.
- Leasing own vehicle – If someone wants to take equity out of a car they own, or would like to take advantage of certain tax savings from leasing, they can sell MotorEnvy the vehicle and lease it back.
- Car Dealer – MotorEnvy has a dealer license, which lets the company operate as a dealership company. MotorEnvy stocks some fantastic cars then leases them to consumers at a great deal.
Most customers range from prime to super primes and APR varies from vehicle to vehicle. Mostly, APR ranges from 5.5 percent to 12 percent, average maturity time is 1.8 years, average FICO score is around 760, and average transaction size is $40,000.
MotorEnvy is a more lucrative proposition for investors than a P2P or alternative lending start-up because it offers investors a secured lending product. All loan are collateralized with ownership of the vehicle, as investors are the lien holders on the car. Therefore, the risk profile is completely different from unsecured lending and chances of recovery are significantly higher as compared to other unsecured lending avenues. The second advantage is MotorEnvy provides investors additional yield pickup compared to traditional auto loans. Usually, a super prime borrower can borrow money for five years at 3 percent-4 percent whereas at MotorEnvy, a one-year term can yield a return between 5.5 percent-10 percent, which is an attractive way to generate additional returns without going down in credit. The third advantage is, it takes out the collateral risk and residual risk from leasing. MotorEnvy ensures residual value at the end of tenure and takes out all the usual risks associated with the residual value. Basically, the lender is assuming the credit risk, but all other parts of the risk equation (residual return + domain knowledge) are taken care by MotorEnvy.
This young startup plans to add more lenders on its leasing portfolio platform. The market is looking for alternative assets to invest in and MotorEnvy is bringing investors value in the very large and untapped market of auto lending/leasing. For now, it has leases in New Jersey, New York, Pennsylvania, Maine, and Florida but is looking to grow aggressively.
MotorEnvy envisioned keeping the car enthusiast in mind, and the company enjoys a huge fan following. Eventually, the company plans to add more commuter friendly and affordable cars (Honda, Toyota) in its fleet. For now, it has high-end cars like Porsche, BMW, Audi, and Tesla. The company has been able to understand the market needs and is targeting a specific niche to dominate. Given its unique product, it is a matter of time before MotorEnvy establishes itself as the major force in the leasing industry.