Some experts predict lease penetration will grow from about 20% of vehicle deliveries now to around 25% and even higher by 2007.
If your dealership wishes to capture its share of this re-emerging opportunity, now is not too soon to sit your sales and F&I crews down and rehash what you remember about leasing.
This time though, you can probably omit one downside — the unrealistic lease rates and terms that stirred up trouble for leasing during its last big push in the late 1990s.
Long lease terms — sometimes 60 months or more — ended up irking customers who were stuck with lengthy payments that caused ill will for the dealers who put them into those vehicles.
Two- and three-year terms are the norm today.
The ominous lessor vicarious liability for lease finance resources now is gone, too. That liability held lease finance companies liable for damages caused by operators of the vehicles they held paper on. To avoid this risk in states such as New York many lessors got out of the market.
That risk ended with President Bush's signature on the federal transportation bill — The Highway Bill — in August 2005. Some lessors stung by this risk may decide to remain out of the market today. Nonetheless, lease activity is picking up.
“The leasing numbers in are already overwhelming,” notes Elaine Litwer, legislative coordinator for the National Vehicle Leasing Assn. “Leasing has advantages for the consumer, and the big advantage for the dealer body is consumer loyalty follows a lease more readily than what follows a sale.”
While the national lease penetration today is around 22%, Litwer boldly predicts it will reach 34% national penetration by next year.
Though lease deals tend to generate less margin than do financed sales deals, leasing has a unique benefit: It tends to bring the customer back to the dealership in two to three years.
Many dealers are willing to forego those additional dollars in exchange for bringing customers back into the dealership sooner.
When confidently presented as a consumer deal options, a lease not only benefits the dealership but consumers alike. Typically, lease payments are considerably less than finance payments for the purchase of a like vehicle.
By offering consumers more car for less money, leasing can make closing the deal easier.
“Leasing options help customers afford a vehicle that may otherwise be financially out of reach through traditional financing options,” notes Raj Sundarum, senior vice president of Dealer Solutions at DealerTrack, an online financing firm.
“When presented with clarity and confidence, and not as an afterthought or a last-ditch pitch to keep the customer in the store, leasing can help increase the number of vehicles sold and can help a consumer achieve their dream of owning a new vehicle every few years,” he says.
But the leasing skills of seasoned dealership staff may be rusty, and some newcomers were not around the last time leasing had so much energy.
In January, DealerTrack launched SalesMaker, a web-based tool to help dealers structure the most profitable deals and present a side-by-side presentation of lease, balloon and retail financing programs.
What Your Staff Should Know about Leasing
To help instill enthusiasm and confidence in your staff, periodically review with them the benefits of leasing. For example, leasing:
- Is a tool to help your dealership sell more vehicles.
- Helps you grow your business; it is a greater predictor of customer loyalty than retail financing.
- Is often the option that makes a difference between a sold customer and a customer that walks.
- Allows your buyer to drive a more prestigious vehicle than his budget might allow under retail finance, all without overextending the customer.
- Reduces your customers' maintenance costs, monthly payments and often eliminates the need for a down payment.
When your staff understands the mechanics of leasing and how it benefits the consumer and your dealership, then positioning leasing for a successful close becomes much easier.