Leasing is smart business - automobile lease - Column

The high level of lease penetration at Carfagno Chevrolet is a good example of what can be accomplished if everyone in the organization works together and capitalizes on every opportunity. We aim for a minimum of 65% new and 35% eligible used car leases each month. On new cars we have been as high as 82%. According to GMAC, we have one of the highest lease penetration percentages among Chevrolet dealers in the United States.

There are no shortcuts to establishing a successful lease and balloon-payment business. You need to profile your customer carefully and tailor the lease or balloon contract to fit the customer's needs and driving habits. Leasing is not for everyone. However, it is a great alternative to traditional financing for a large segment of the customer population. In our dealership, and probably for the rest of the country, the switch in thinking from retail to leasing began back in 1992 with the availability of balloon financing. Even though Carfagno Chevrolet usually posted new car lease penetration figures in the 30% range, the advent of balloon financing removed the obstacle of lease-mandated higher insurance coverages for first time buyers and college graduates. More important, it moved our customer-base to a shorter purchase cycle. And the customers liked the idea of driving a higher-grade vehicle for a lower payment. The entire dealership - from the dealer to the sales force - began to promote leasing FIRST to every customer. Over time, 30 to 40 customers every month roll out of lease or balloon payment contracts ready for a new vehicle.

High lease penetration has proved to be advantageous to the dealership in other ways. On average, about 90% of the customers will return to where they took delivery of their vehicle at the end of a lease or balloon payment agreement - versus approximately 35% if the vehicle is funded by an in-dealership finance source and 15% if the customer secured financing from an outside lender. Of equal importance, we put our lease and balloon payment customers into new vehicles every two to three years instead of the four to five year time-frame found in traditional installment financing. Because a lease transaction is generally "payment driven" there is less pressure on front-end gross.

The average Chevrolet customer trades every 3 years. Unless they tender a very large downpayment or trade in a late model vehicle with a clear title, they are upside down when they trade-out. A lease or balloon payment allows them to trade when they are ready and they have use of the money normally spent on a downpayment or for higher monthly payments. The customers drive away with the vehicle they want as often as not with cash left in their pockets'. As we point out to our customers, it makes little sense to put large sums of cash into a depreciating asset. Cash is better spent on home improvements, college tuition or a family trip to Disney World.

I'm sure that every F&I practitioner is saying, 'What's in it for me?'. If leasing is the mainstay of the F&I department, the compensation plans must be altered to compensate for the absence of any appreciable back-end profit. However, equitable pay plans can be established.

As vehicles become more expensive, leasing and balloon payments will account for a greater segment of all vehicle sales. The benefits of leasing are available to everyone - consumers, dealers and F&I practitioners. If leasing is a priority from the dealer principal on down, the F&I staff is properly compensated and capable of presenting the benefits of leasing and balloon payments - with conviction - it will soon be apparent that leasing is SMART BUSINESS!

Susan Ellis began marketing vehicle leases in 1985 - adding the full complement of F&I services to her repertoire in 1989. Mrs. Ellis has worked for the past 8 years for Carfagno Chevrolet located northwest of Philadelphia. Married to a Special Finance Manager employed by a Chrysler dealership, the Ellis' have four daughters and one grandchild. Susan has been an AFIP member since 1993 and is a Certified F&I Professional.

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