Dealer Insights - November/December 2013 - Take Another Look at Leasing: Understanding your Customers’ Mindset is Key
Understanding your customers' mindset is key
It seems like only yesterday when leasing was at the bottom of your dealership's radar screen. Some of the major franchises were closing their leasing operations, because the profits weren't there and they feared further losses. At the same time, financing dollars were absent for customers who, hit hard by the recession, were looking at leasing as a luxury they could no longer afford.
But that was then. Signs now point to a resurgence in auto leasing. Experian Automotive, a provider of automotive data, for example, recently announced that auto leasing has reached the highest level since the company began tracking data in 2006. According to its most recent State of the Automotive Finance Market quarterly report, leasing made up a record 27.5% of all new vehicles financed, up from 24.4% in the first quarter of 2012.
So it's time to revisit, or revive, your leasing operation if you haven't already done so. And to be truly effective, you'll need to think like your customers.
The customer point of view
The reasons why customers are again turning to leasing are the same as they've always been. Industry watchers say that being able to always drive a new car is a top draw for consumers. And the ability to drive a more expensive car than one could normally afford is another part of leasing's lure. On the practical side, customers like that their cars are always under warranty — those who lease in the common three-year cycle are usually under the manufacturer's bumper-to-bumper warranty.
Customers who leased their last new vehicles are much more likely to lease their next new vehicles than take out a loan or lay down cash for a new set of wheels, according to researchers. But they — especially new customers — don't show up at your store without concerns. A central issue is that leasing is believed to be more expensive than buying.
A new analysis
Edmunds.com in June updated its frequently circulated analysis comparing the costs of new, used and leased cars. Conventional wisdom has long held that buying a car is less expensive than leasing a car, and customers who enter your showroom typically carry that belief. The new analysis reaffirms that assumption, and adds some new considerations.
Using the example of a popular model of sedan that retails at $24,500, Edmunds compared a customer who leases two new models back to back over a six-year period vs. a customer who purchases the same car via a five-year loan and then keeps the vehicle an additional year. (Six years is now the average length of ownership for a new car.)
Under this scenario, the total out-of-pocket cost for leasing the new sedans was $24,768, compared to $28,830 for buying one new sedan and keeping it six years. However, the person who bought the new car would own a depreciated vehicle worth about $11,000 at the end of the six-year period. The customer who leased would have nothing.
Edmunds then took the analysis a step further. It calculated the costs of insuring a leased car vs. a depreciating car as well as the owner's costs of repairs not under warranty during the six-year period.
Consider the angles
Leasing has pros and cons and it's up to your salespeople to provide new-car shoppers with the necessary facts to make informed decisions. Savvy customers will be thinking through these angles themselves, and will appreciate the honesty.
Dealer Insights - November/December 2013