As appeared in November 2016 Automotive News Canada, Vo.1, No. 5
By: Jeff Fallowfield, President of Distribution and Marketing, LGM Financial Services
Rising lease penetration isn’t a new phenomenon.
Though the industry suffered a major setback during the financial crisis of 2009, leasing has largely had an upward trajectory and currently accounts for roughly a quarter of new car sales in Canada, even higher in the luxury segment.
With this significant slice of the market showing no sign of slowing, it’s no surprise that leasing has affected what’s on offer in the Financial Services Office.
It’s true that a customer might not need mechanical-breakdown protection since the factory warranty will cover them throughout the typical lease period. Products such as credit insurance are also not as relevant with no loan to protect. Despite this undeniable reality, dealers should not be discouraged; what is lost in the more traditional F&I product mix, is made up for in programs like pre-paid maintenance, lease-end wear waiver, and appearance protection.
Nowadays, lease customers are responsible for vehicle wear and tear, the result of a hard lesson learned by manufacturers. In the early 2000s, customers treated leased vehicles like rentals and damages were ultimately driving down the residual value of the car for resale. It didn’t take long for OEMs to implement stringent return requirements, including specific tire tread depths and the mandatory replacement of anything with material wear and tear or damage.
When consumers return their vehicle at the end of the lease period and undergo an extensive inspection, it pays to have a product like lease-end wear waiver. Furthermore, if a customer purchases scratch-and-dent or appearance protection, they can use that product from Day One. If their door is dinged early in the lease period, the pride of ownership doesn’t have to wait until the end, like with a lease-end waiver.
The product mix that lease customers find attractive is certainly different than that of a vehicle purchase. But what goes around comes around. When dealers lease more, they open themselves up to future repeat customers. Drivers who lease are captive customers; they return every three to four years looking for more.
COMING FULL CIRCLE
This not only lends itself to customer retention, it also means more “good” used cars are in market. This replenishes the need for F&I products such as mechanical breakdown protection, appearance, and credit insurance. All of a sudden, we’ve come full circle and find ourselves back at the more traditional product mix.
The used-car buyer wants to protect his or her purchase as much as anyone else. It’s exciting to think of where used car inventory is going. All signs point to the whole gamut of F&I products having a place in the future. – ANC