Addressing the issue of lease vehicle personalization is fast becoming more relevant to dealer’s profit margins. According to Automotive News on April 23, 2015;
“GM Financial posted $3 billion in lease originations in the U.S. and Canada combined for the first quarter, up from $773 million a year earlier. Leases accounted for 57 percent of GM Financial originations in North America for the first quarter, up from 36 percent a year ago.” Combining this dramatic upswing in lease penetration with the changing demographics of the average retail vehicle customer, and the lower F&I revenue on lease contracts vs. long term buy contracts, the need to get “ahead of the curve” in lease vehicle personalization has become more important than ever.
According to Chris Stommel, President of Foresight Research:
• Millennials install accessories at a 42% higher rate, and
• Spend 61% more on personalization than the average new auto purchaser.
Another important demographic factor is that millennials even leapfrogged Gen X in new car purchases early in the third quarter of 2014.
While Boomers, still account for more new vehicle purchases, Millennial’s are on the fastest track to becoming the prime target for automotive retail sellers, they lease their vehicles at an increasing rate. They also personalize their new vehicles at unprecedented rates.
The lease challenge. Amortizing the capitalized cost of accessories and presenting the consumer advantage!
Amortizing the cost of vehicle personalization over the shorter lease term (24-39 month) on the surface presents a challenge...specifically to keep the payments low. According to Edmunds, 62% of car loans in 2014 were for terms above 60 months . First quarter reporting from Experian Automotive reflects the average new car loan in 2015 lasted 67 months and 62 months for used vehicles.
How do YOU overcome this fiscal challenge when presenting personalization while selling it as an advantage to the consumer?
Very often personalization items can be residualized with the vehicle. As we know, residual or future value is calculated as a percentage of MSRP, and deducting this estimated future value of a vehicle is the primary factor that lowers the monthly payment of a lease contract from a like term buy contract, often lower than a long term buy payment on the vehicle.
Most lessors have a specific amount they will allow towards the adjusted MSRP of the leased vehicle for wheels, sunroofs, running boards, etc., which they then multiply by the residual percentage and then add to the future value for calculation of the monthly payment.
With a little bit of research and elbow grease on the part of dealership personnel working with Insignia Group Vehicle Personalization and Customer Care Experts, the keys to unlocking additional profit can be combined with the customer retention, shorter buying cycle and lower monthly payments attributes that leasing provides.
Lease packages can be readily developed allowing the dealer to offer groupings of popular accessories for vehicles, much as the manufacturer’s factory option packages are structured. This in turn makes lease vehicle personalization a viable, financially attainable, and positive part of the customer’s overall dealer experience.
The additional good news is that many times when a manufacturer runs a “special” lease payment ad to spark sales volume, this low payment is very often arrived at by a manufacturer’s captive finance company enhancing this residual percentage as a sort of “future rebate” program. Since the additional monthly cost of these accessories is also determined by the residual percentage the additional monthly cost of vehicle personalization will decrease as well.
Written by Ed Murphy, Insignia Group Vehicle Personalization Expert