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Maxim: Worry-free ownership
For dealerships, there are pros and cons to high lease penetration.
Most, if not all, industry experts agree that lease customers likely will be shopping again in three years, an obvious positive.
Insiders are divided, however, on how lease deals affect F&I product sales and profit. Some say lease customers are unlikely to opt for F&I products while others view lease customers as an F&I sales opportunity.
“The only money to make on lease is reserve,” says Rasheed Creary, business manager at Sutliff Volkswagen in Harrisburg, Pa. Because lease customers tend to choose only prepaid maintenance at Creary’s dealership, “to us it’s almost like a cash deal,” he said.
Leasing accounted for a record high of 31.4 percent of new-vehicle transactions in the second quarter this year, compared with 26.9 percent in the 2015 period, Experian data show.
The F&I profit per vehicle on a lease is typically half as much as on a loan deal because lease customers focus on the short term, says Jim Maxim, president of vendor MaximTrak Technologies. “The customer is buying a lease to have a new car under the manufacturer warranty,” he said. “Sometimes maintenance is even thrown in.”
Maxim suggests that F&I managers introduce protection products with the lease of a vehicle, reminding the customers that the products will lead to a more worry-free ownership experience, a priority for many lease customers.
The challenge in selling F&I products to lease customers has to do with timing and familiarity, says Marie Knight, vice president of strategic relationships at Zurich North America. Knight has seen an increase in leasing F&I profit in the past year as F&I managers become more savvy with lease deals.
Leasing has always been popular among some luxury brands. But it dropped during the downturn in 2008 and 2009 as lenders pulled back on auto financing. It returned to pre-recession levels in 2013 and has grown steadily since, especially as customers of mainstream brands latched onto the option.
Over time, Knight said, as finance managers become more comfortable dealing with lease customers, their F&I sales and profits will increase.
Lease customers target a low monthly payment and low maintenance responsibilities, she said. “Any product that meets those needs would have appeal to a lease customer.”
Some lease customers are also prime candidates for an F&I product designed to wrap around the manufacturer warranty, says Margot Miller, corporate director of finance for Mills Auto Group in Fort Mill, S.C.
“Most people are doing three-year, 45,000-mile leases. There is a portion in there where the customer is exposed to mechanical failure liability,” she said.
In that situation, if the manufacturer warranty covers 30,000 miles, F&I managers could sell a short-term service contract or wrap to fill in the 15,000-mile hole.
Miller’s stores also have a bundled product popular among lease customers that offers roadside assistance and key, tire, wheel, windshield and dent-and-ding protection. “Those things typically happen within three years of ownership,” Miller said.
Many people in the industry say lease penetration hurts F&I, says Mike Casey, group vice president of sales at JM&A Group. But “if profit per vehicle is growing and penetration is growing,” he said, “it’s not a factor.”
Experts split over F&I sales on lease deals
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