A recent trend suggests that a growing number of consumers are favoring vehicle leasing over buying at rates that mirror pre-pandemic performance. During the COVID years, OEMs experienced understandable lease inventory deficits, affecting the overall sales performance of leased vehicles at dealerships nationwide. Recent industry data and OEM’s growth of vehicle inventory indicate that leasing is back.
“Dealers are constantly working with their OEMs and lender partners on the changing dynamics of vehicle finance options. During and immediately following the pandemic, leasing and lease finance options significantly decreased due to the lack of inventory. However, as years have gone by and supply levels have changed, many OEMs are now looking to boost their lease levels, which will also alter the different types of F&I options dealers should offer their customers.”
-Protective Asset Protection Study
The Resurgence of the Vehicle Lease
According to a TechNavio Industry Analysis, “The car leasing market size is estimated to increase by USD 55.3 billion and grow at a CAGR of 9.24% between 2023 and 2028.” This phenomenon is primarily driven by evolving consumer needs, cost analysis, improved inventory, and even the emergence of more efficient electric vehicles which are attractive to modern, urban commuters. For Finance Managers, F&I providers, and Agents, the shift in buyer preference toward leasing raises several challenges and opportunities. What will the impact be on traditional F&I program sales, and which programs are best suited to cater to the needs of leasing customers?
The Impacts on F&I
While leasing has several benefits for Dealers, a loss of loan origination revenue and a reduction in F&I program sales rank among the chief downsides. Here are just a few ways that leasing can negatively impact Dealer F&I sales:
Loss of GAP Sales:
“Most leases come with Guaranteed Asset Protection (GAP) included, so lease customers don’t buy it at the dealership. If a vehicle is stolen or totaled in an accident, GAP pays the difference between the actual value of the vehicle and the remaining balance on the loan or lease” (Leasing Continue Its Comeback)
Fewer VSCs:
The prevalence of OEM warranties on leased vehicles means that fewer consumers are compelled to purchase additional vehicle service coverage.
Overall Reduction in F&I Sales Revenue:
A vast majority of Franchise dealers report that the bulk of their F&I revenue comes by way of new and used vehicle sales, not leases.
Leasing F&I Opportunities
While obvious challenges exist, savvy dealers can leverage opportunities to improve F&I sales for leased vehicles. It is not that consumers abdicate F&I programs altogether when they lease a vehicle, it’s just that they consider different product options. A well-trained sales department armed with innovative and diverse F&I programs can capitalize on non-traditional sales opportunities. Here are some F&I programs that are most attractive to lease consumers:
Pre-Paid Maintenance:
Pre-paid maintenance often makes sense for a vehicle lease. These programs can increase the car’s residual value, offer consumers discounted maintenance prices, and lock in costs over the term of the lease.
Lease Wear & Tear:
Most dealers allow for reasonable wear and tear of a vehicle over the term of the lease, but there are exceptions and often strict cost guidelines. A comprehensive lease wear and tear program can protect consumers from excessive additional fees and penalties when the lease term concludes.
Tire and Wheel and Bundle Programs:
Depending on expected driving conditions and tire and wheel types, an additional Tire and Wheel program can be beneficial for a vehicle lease. Many programs bundle appearance-related items and tire and wheel. In some instances, those programs can satisfy the customer’s concern about lease wear and tear. Most insurance companies do not cover tire and wheel damage, which can cost consumers hundreds or thousands of dollars to repair. Additionally, many tire and wheel programs offer important complimentary benefits like towing, battery service, and key replacement.
Effective sales training, understanding the needs of the consumer, and offering a portfolio of appropriate F&I programs can close the revenue gap for dealers and make leasing a more profitable endeavor.
AutoXcel’s Lease Wear and Tear Programs
AutoXcel offers a range of coverages in its suite of Lease Wear and Tear Programs:
Lease Wear & Tear
AutoXcel's Lease Wear & Tear program is designed to protect leaseholders from significant penalties associated with common vehicle wear and tear. By encouraging your customers to enroll in this valuable program, they can save on additional out-of-pocket expenses when returning a leased vehicle. The program helps drivers avoid security deposit deductions and offers coverage up to $5,000.
AX4 w/ Key Ultimate (LWT)
AutoXcel's AX4 with Key Ultimate is a Lease Wear & Tear program that offers premium features like tire, wheel, and windshield protection, along with paintless dent repair. Additionally, AX4 provides generous end-of-term lease benefits to help drivers save on unforeseen out-of-pocket expenses, with coverage up to $5,000. Lastly, the AX4 program offers optional key replacement coverage.
AX5 w/ Key Ultimate (LWT)
AX5 with Key Ultimate is our most robust Lease Wear & Tear Program with features designed to deliver drivers maximum protection. The program includes windshield repair and windshield replacement reimbursement, paintless dent repair, comprehensive tire and wheel coverage, extensive roadside assistance benefits, and interior/ exterior protection. With an applicable term of up to seven years, AX5 also affords drivers with optional key replacement coverage.
Contact AutoXcel today to learn more about these valuable programs and how your dealership can increase F&I revenue in the leasing market.
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