Increase Your Dealership Lease Percentages & Profit
As automotive market compression continues the evaporation of profit for new vehicle franchised auto dealers across the country. There are real solutions a dealership can deploy increasing customer retention, gross profit, shorter trade cycles, and an endless supply of core pre-owned inventory that dealerships currently struggle to acquire often paying fees to procure.
With proper process’ put into place you can increase your market penetration with returning customers and develop a shorter trade cycle for your customers that will increase new vehicle volume for your dealership. In 2019 86% of new vehicle consumers financed the new vehicle purchase through traditional lending avenues, either through the dealership that are captive financing customers or prior to purchasing set up their own financing through a bank or credit union. Most of these consumers never explored the leasing option largely due to their dealership representative unable to explain properly how leasing can assist them in their “wants and needs assessment” and/or the common goal of a fixed expense for their new vehicle purchase. Dealerships that have a high lease percentage (over 60%) generally have more new vehicle volume, higher new vehicle profit, higher customer retention, and a thriving used vehicle department.
Every customer that purchases a vehicle from your dealership, whether they pay cash or finance should be presented a comparable lease by a professional dealership representative that has deep understanding of the leasing option itself and the process as a whole on how it works. They must be able to provide the consumer an honest, comparable, and an upfront difference on how leasing can insulate the acquisition of the new vehicle being acquired while mitigating their exposure to negative equity, length of contractual obligation, and really fix the expense of vehicle ownership. If they don’t have the knowledge to adequately and intelligently explain how leasing works to a customer, the customer will not only continue with a purchase, but is also likely to never lease in the future.
If your dealership leases more vehicles they will see more volume & profits, while putting your customers in shorter trade cycles.
As we explore the top 3 objections to leasing vs. buying Dealership Experts will share with you with some perspective of how you can increase your leasing penetration without sacrificing the ancillary products sales and profits that your finance department currently procures.
The number one consumer objection to leasing is well known. The customer will convey to the dealership representative that they “want to own their vehicle”. The training response you provide is imperative. It can either open the consideration to the consumer of their own thought of leasing the new vehicle or allow the selective reasoning of the consumer to ensue continuing on the traditional finance trajectory putting them in an extended trade cycle not benefitting the consumer or the dealer, all while opening the door for completing dealers to acquire that consumer in the future. As a majority, close to 90% of consumers, have an existing balance to a lending institution on the vehicle they are trading to your dealership. A solid process needs to be able to address this in a way that is not insulting to the customers intelligence, however that they understand they do not really own their vehicle. As a matter of fact, they carry an increased financial exposure that is unknown to them during the purchase. Conveying this message is simple. Have your trusted professionals ask the customer questions you already have the answers to such as “is your current vehicle financed?”; “Did your current financial institution provide you a guaranteed future value of the vehicle collateral when you signed for the loan”? Then follow it up with asking the consumer “what would happen if they did not make payments on the vehicle for 3 months.” The answer is always the same, the bank (the true owner) would repossess the collateral exercising true ownership, sell the collateral to the highest bidder as quick as possible, and then seek you the consumer for the difference, referred to as a deficiency balance owed, from the fire sale price to the actual payoff of the current loan. This is not good for the consumer trade cycle time or the dealer trying to have more opportunities to trade in the auto industry fluid market.
Next up is the mileage objection. Customers that drive more than the national average of 15,000 miles per year really steer away from a lease. Reality is that this is the customer that should really explore leasing as an option. If you finance a vehicle while putting say 20,000 miles per year your monthly payment will not pay into the equity of that vehicle fast enough as your vehicle will be depreciating at a much faster rate. This creates negative equity in much greater amounts, accelerates the expiration of manufacture warranties faster, and takes what could be a fixed expense turning it into a variable expense. Your maintenance expenses in a purchase will come in faster time period increasing your monthly amount in unknown increments. Whereas with a lease you have the ability to build in excess mileage into the lease payment itself while having a guaranteed future value of the vehicle. Having the manufacture back the future value of the depreciating asset cements your equitable and/or inequitable position at lease termination giving you control while the manufactures will provide additional incentives such as pull a heads, waiving of excess mileage fees, and may even offer tax credits to put you in another new vehicle. These are options that never come with a purchase.
Lastly is the cash buyer who everyone thinks is the toughest to convert. When presenting a lease to a cash buyer you should first point out if there was a way to save most of your cash, pay less up front in taxes, have no monthly payment, and have a guaranteed future value of the vehicle would they like to see a comparison in costs. A “One Pay” lease offers all of these benefits to this customer along with other controllable financial flexibility they would not have with a complete cash outlay.
We could continue on with more however I believe I have summed up the lease vs. purchase scenario and be sure to make it a part of your customer presentation. Also, you should incentivize your finance department personnel to include your dealerships lease penetration or any other way that fits within your statement compensation guidelines. If you add a proper lease presentation to your customer process, you are certain to lease more new vehicles and increase your new vehicle volume, new vehicle gross, and customer retention.