||Cheap, Easy Credit Gives Lift to Leases
Encouraged by cheap and easily available credit, several mass market brands will get more aggressive with leasing this year to boost sales and customer loyalty.
At the National Automobile Dealers Association convention in Orlando last week, Chrysler Group, Buick, Honda, Toyota, Hyundai and Ford cited plans to increase lease penetration. Manufacturers say the low cost of funds means they can offer subvented leases in more segments.
Last year 22 percent of all new vehicles registered in the United States were leased, according to Edmunds.com. From November through January, Edmunds says, the share was 25 percent.
"It seems almost every car has a lease deal," said Edmunds analyst Jessica Caldwell. "A big part of this has to do with the credit market -- it is cheap."
ALG, which sets residual values for the industry, expects the average lease penetration for 25 volume brands it tracks to grow from 15.6 percent last year to 16.2 percent in 2016. That compares with 10 percent in 2009, when the market was in turmoil.
ALG says lease penetration for 12 luxury brands averaged 41.4 percent last year and is expected to grow to 43.4 percent in 2016.
Honda told dealers in Orlando that it wants to raise lease penetration from 26.2 percent last year to 30 percent in 2013. That would put Honda on the heels of the volume-brand leader in leasing, Volkswagen, at 31.4 percent in 2012.
Toyota wants to go from about 19 percent last year to "well past 20 percent," said Bill Fay, general manager of Toyota Division.
Buick wants to drive its lease penetration higher after it rose steadily from 17 percent in March 2012 through the end of the year, when it stood at 34 percent. Buick aims to surpass 40 percent penetration, partly through a 24-month lease deal that includes regular maintenance and other perks. It did not say when it expects to hit the target.
Chrysler Group expects dealers nearly to double the number of new vehicles they lease after Chrysler Capital, the group's new financial joint venture with Banco Santander SA, launches May 1.
Last year leasing accounted for 11.8 percent of Chrysler brand volume, 2.4 percent for Dodge, and 11 percent for Jeep, according to ALG.
Scott Fink, Hyundai dealer council chairman, says Hyundai will push harder into leasing. The brand currently is at more than 20 percent leases.
"With consumers' disposable income down, it's harder to buy a car," he said. "Leasing starts to make more sense."
Ford Motor Co. wants to increase leases for both the Ford and Lincoln brands. Beau Smith, chairman of the Ford National Dealer Council, said leases will be a critical factor if the Ford brand is to regain market share in the United States this year.
"That's a 2013 initiative," said Smith, co-owner of Sill-Terhar Ford in suburban Denver, along with a number of other franchises. "If we're going to be competitive and reach market share goals in the super segment particularly -- Fiesta-Focus-Fusion-Escape -- we'll have to have competitive leases."
According to ALG, Ford's lease penetration rate was 16.4 percent last year, up from 14.8 percent in 2011 and 9.0 percent in 2009.
"It's a re-education top to bottom -- working together to raise the lease percentage number," Smith said.
Franklin McLarty, CEO of the dealership group RLJ-McLarty-Landers in Little Rock, Ark., said he would welcome more leasing from Ford and other carmakers.
"I like the leasing business," he said. "That's a natural cycle for an ongoing relationship between a dealer and a customer to revisit the dealership every several years for a new vehicle. As long as they can hold up residuals. But when manufacturers overproduce and have to use incentives, that's not a good thing."
RLJ-McLarty-Landers owns 25 dealerships in eight states selling 13 brands.
Other luxury brands beside Lincoln also are stepping up their leasing. Volvo's penetration rate was 17 percent last year -- the lowest of any luxury brand and a dramatic drop from 51 percent in 2008, according to ALG. Volvo expects leases to grow to 32 percent of its U.S. sales this year with the launch of its new captive financial arm, Volvo Cars Financial Services U.S., which began retail lending in December.
With its own captive, Volvo has added 24-, 39- and 42-month leases in addition to its 36- and 48-month deals.
Tom Webb, chief economist at Manheim, the nation's largest auto auction company, said leases in 2009 were down 57 percent from the 2007 figure -- a plunge far steeper than the overall decline in new-vehicle sales.
Since then the number of leases has gone up faster than sales, he says -- from 1.1 million in 2009 to 2.1 million in 2011 and 2.5 million in 2012.
And he says the trend will continue.
"When you look at lease penetration rates in terms of new-vehicle sales, something in the low 20 percent up toward 30 percent would be logical," he said. "I think it trends up over time."
(Source: Automotive News, 02/20/13)
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