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Rethinking Leasing

As leasing gears up for another surge, the magazine’s veteran F&I expert offers a historical perspective and a few tips for adding product sales to this transaction type.

April 2012, F&I and Showroom - Feature

by George Angus - Also by this author

There was a lot of buzz about leasing at February’s NADA Convention. Recent numbers indicate the pickup in leasing last year will continue in 2012, but is there a limit to how much this transaction type can grow? That’s up to the manufacturers, and a little history lesson might provide some clarity on just how far they will take it.

Yes, there has been an obvious resurgence in new-vehicle leasing, but consider the source: Dealers who are reporting any significant increase are doing it as a result of heavily advertised and factory-subsidized incentive programs. The brands that don’t have these incentives are still delivering a relatively small percentage of leases.

The big question is why some in the industry would think leasing is a good thing when dealers currently have access to the lowest interest rates in recent memory. Well, from the manufacturers’ standpoint, leasing represents a way for them to sell more new vehicles — not only today, but three years from now, when those leases expire. It’s good for the manufacturer lending arms as well, as they are only committing their money supply for three years instead of five, six or seven.

Leasing can be good for dealers, too. Gross profits, brand loyalty and dealer retention are much higher on leases than on retail deals, and a 36-month lease brings customers back to the market much faster than a long-term retail finance deal. Lease-return vehicles also are critical to restocking the used-car market, which helps bring prices down.

And let’s not forget the customer. In one study, 44 percent of new-car buyers owed more on their trade-in than the trade allowance shown on the retail order. Leasing solves this problem and allows the customer to drive a car they might not be able to buy.

Growing Pains

But before we get too excited about the potential growth of leasing, let’s run through that history lesson I mentioned earlier. There have always been specific market conditions that cause higher levels of leasing, just as there are conditions that cause it to become less popular.

Leasing first began to gain traction in the early 1980s. At the time, the industry struggled to recover from the debacle of the mid-to-late ’70s, when clean, late-model used cars were in short supply and interest rates on conventional loans were fairly high. Manufacturers and dealers looked to leasing as a way to get people into new cars.

Comment

  1. 1. BG TANZER [ April 24, 2012 @ 08:51PM ]

    In the GM family the rebates can be twice as much as that of a retail deal with great money factors so we average $1700 reserve, Smart Lease Protection & a few other items converting 0 percen/$100 flats & cash deals. Would I rather have 2 points on 72 months ??? Sure but not every buyer will accept that especially when they have a credit union. I for one like having leases in my tool box.

 

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