"Green" is the hottest color for automobiles today. Environmental concerns are behind everything from President Barack Obama's push to develop more green vehicles to the Cash for Clunkers program that aimed to get gas guzzlers off the road.
Now banks and credit unions are jumping on the eco-friendly bandwagon by ramping up green auto loan programs. This type of financing offers lower interest rates for customers who buy hybrids or fuel-efficient vehicles.
While some financial institutions have offered green auto loans since the mid-2000s, others have recently introduced the products.
At U.S. Bank, there's been an increasing push in the past year to address environmental concerns, says David Herpers, vice president of consumer credit products. In April, the Minneapolis-based bank introduced green auto loans.
"As a bank, we want to do what we can to be responsible as it relates to green initiatives," Herpers says. "But it should be a win-win-win. The bank and the environment and the customers win."
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Customers who buy a vehicle certified as green by the Environmental Protection Agency receive a 0.5 percent discount on the interest rate of their loan for a new or used vehicle.
The bank benefits as well because a review of its vehicle loan portfolio has shown that shoppers who purchase fuel-efficient autos are more likely to make their payments than consumers with other types of vehicles, Herpers says.
"It decreases our risk in our loan portfolio," he says.
While it's too soon to really tell how this product will be received by U.S. Bank customers, financial institutions with longer histories of "green" lending generally report strong success.
At Addison Avenue Federal Credit Union in Palo Alto, Calif., the credit union first introduced a hybrid vehicle loan on Earth Day 2005 at the request of one of its member organizations, says Doug Marshall, senior vice president of retail.
Now, the credit union considers a number of gas- or diesel-powered vehicles "green" if they have a highway fuel economy rating of 40 miles per gallon or greater. Buyers of such autos are eligible for a 0.5 percent interest rate discount. Customers who sign up for e-statements get another 0.25 percent off.
Today, these loans account for 20 percent to 25 percent of Addison Avenue's business, Marshall says. Because a large number of the credit union's members work in high-tech fields, they are "comfortable with technology and look at these things a little earlier."
Success storiesGreen loans are likely to appeal to millennials -- those drivers who are now in their teens to late 20s and tend to be more environmentally conscious than previous generations, says Jeffrey Stoltman, associate professor of marketing at Wayne State University in Detroit.
However, the loans may be finding a wider audience as well. While auto sales plummeted in 2008 -- and were off to a slow start this year before the Cash for Clunkers program had kicked in -- sales of some fuel-efficient vehicles held up well, according to Stoltman.
Stoltman says increased interest in green cars wasn't just a matter of consumers thinking "I want to help the earth." Instead, he says, it was "I want to save pennies."
Traci Gearhart, senior information technology manager for Levi Strauss & Co. in San Francisco, used a green auto loan from Addison Avenue to buy her 2009 Toyota Prius. She made the purchase after her family moved from the city to the suburbs and she could no longer use public transportation for her commute.