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On the Point

To Lease or Not to Lease

Da Man offers his take on the current leasing boom and delivers a few of his favorite lease closes.

July 5, 2016

Writing about leasing requires that I don several hats, as it’s important that I clarify the processes and move dealerships to a better strategic policy.

When wearing my sales or desk manager hat, I need to know the best way to present my leasing vs. retail figures to a customer. I also need to know what considerations impact my decisions. I also need to know when to covert a customer to a lease.

When wearing my general manager hat, I have to consider what is best and most profitable for the dealership. As a sales professional, I have to consider when and how to present the lease proposition to customers. I also have to know what to tell them.

It amazes me when I see that leasing accounts for a majority of sales in some regions of the country, particularly in New York and New Jersey. I mean, leasing used to be more prevalent in the high-dollar luxury stores. That’s obviously not the case anymore.

Why is that? Well, according to IHS Automotive, the average age of vehicles on U.S. roads in 2015 was 11.5 years. Theoretically, leasing is supposed to shorten trade cycles to a manageable three years. I write “theoretically” because that belief is based on some false assumptions I’ll address later. Leasing also means we’ll have some really great certified pre-owned units. Problem, we’ll be so high in them, we won’t be able to unload them. If that’s happening to you right now, you’re probably a General Motors dealer.

Truthfully, leasing never actually works for the lessors in a competitive market. And it always crashes and goes away for a while. It starts out OK, but then the manufacturers screw it up by cranking up residuals to unrealistic levels as they chase the numbers. But all they’re really doing is delaying their losses, as somebody has to eat those over-residualized units. That’s what’s happening now.

As a manager, I don’t want my sales professionals converting a retail sale to a lease before I have the opportunity to get involved in the deal. Hey, a retail sale is usually more profitable. As a manager, I reserve the right to make that call. I do realize that some manufacturers are requiring a lease presentation to 100% of a dealership’s customers. Of course, these same OEMs advertise lease deals with zero profitability for the dealer.

So why should a salesperson push a retail customer toward leasing? And what do you tell the customer? I can’t tell you how often I hear sales professionals using the wrong words and descriptions when discussing the benefits of leasing. For instance, you should never tell customers they have the option to buy the car. Instead, tell them they have the right to “continue ownership for a pre-determined and guaranteed future value.”

Secondly, never say they can “trade it in.” Instead, say, “You have the ability to exchange it every three years for the latest model, and your payments will never go up more than inflation.” Here are some more of my favorite lease closes:

Close No. 1: You have the option to walk away with no continuing obligation if the pre-agreed future value is too high. You do not have to continue ownership. The lessor assumes all the risk of loss. If it is worth more, you can continue owning it. If it takes a loss, we eat it.

Close No. 2: You have a newer car that is always under factory warranty. It’s usually the current body style. You upgrade to a new car before the most costly repairs occur and wear items like tires need to be replaced.

Close No. 3: You say you like to own your cars? Sir (ma’am), you have a balance on the car you’re trading in. As a matter of fact, you have traded in every car you’ve ever owned before it was paid off. That means you’ve never actually owned a car. The lender has always held the title on every car you’ve owned, and you have negative equity on your current trade-in. If you would have leased, the lessor would have eaten the loss.

Leasing is running at a fever pace right now. As a manager, I prefer to control it. In fact, I will only present lease vs. retail figures on the second pass if the customer did not ask for a lease at the outset. Keep those calls and messages coming.

Jim Ziegler is the president of Ziegler SuperSystems Inc. Contact him at jim.ziegler@bobit.com.

Comments

  1. 1. Dan [ July 05, 2016 @ 04:39PM ]

    As a customer who is considering a lease on a future vehicle I have to ask...I keep hearing that when leasing a vehicle the lease MUST be done at full MSRP and that the Cap Cost CANNOT be discounted at all. Is this true?

  2. 2. Cookie Weaver [ July 06, 2016 @ 09:13AM ]

    I sold cars for 20 years. Always shared info on what the obligation of the leasee was. I handled lease returns for Ed Bozarth and knew what the fees for unacceptable wear and damage was. My body shop and detail department saved these people enormous charges.

  3. 3. Buddy [ July 12, 2016 @ 08:09AM ]

    No Dan, that is not true. I have been leasing for more than a decade, Acura or BMW mostly. In every case, I negotiate the selling price of the vehicle exactly as I would if I were purchasing the vehicle. Anyone who tells you a lease MUST be done at full MSRP is lying or ignorant. You do not lease the vehicle from the dealer. You lease it from the leasing company. The dealer sells it to the leasing company at the price negotiated with you. To the dealer, a lease is just another sale. Of course, as noted in this article, usually dealer's do not make as much profit on a lease, mostly on the back end.

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Author Bio

Jim Ziegler

President & CEO of Ziegler SuperSystems

Jim 'Da Man' Ziegler joined the magazine in 2011 to deliver his On-the-Point message about the car business to dealer principals and store managers. He'll offer strategy advice on everything from sales and F&I to marketing in the digital age. Catch him every month at www.fi-magazine.com.

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