With auction prices for sport-utility vehicles in a tailspin, lessors have started to assert greater control over the lease-end process, according to some industry executives. Though they have not actually changed lease-end inspection rules, some lessors are more ardently assessing fees for vehicle damages.
Lessors “are not letting people off the hook as much,” said Tarry Shebesta, president of the National Vehicle Leasing Association and direct-to-consumer leasing firm Automobile Consumer Services Inc. “They are going to be a little more nitpicky.”
In recent months, the average outstanding balance for lease-end fees collected by Accounts Receivable Technologies has doubled, said Paul Errigo, the company’s co-founder and chief executive. The Woodbridge, N.J.-based collection firm pursues about $2,500 in lease-end fees per account, up from $1,100 or $1,200 previously, he said. ART collects lease-end balances for most of the nation’s top lessors.
A decade ago, lessors spent a lot of time educating lessees about the type of damage for which they would be charged at end of term. Now they take a different stance. “The sympathy card is gone a little bit,” Errigo said. “There are no more excuses. Everybody is going after the balance.” Some lessors have even assigned the debt to secondary agencies, he added.
In general, lessees may be penalized for over-mileage, excess wear and tear, vehicle disposition, unpaid taxes, and traffic violations.
The most clear-cut fee is over-mileage, Errigo said. “That’s the area where there’s no argument,” he said. If a lessee exceeds the mileage limit set forth in the original documentation, he is liable for an overage fee. Errigo has seen some over-mileage fees as high as $17,000; the average, though, hovers closer to $2,500.
Lessors may also assess fees for excess wear and tear, which covers dings, dents, and scratches, and things like cracked windshields and worn tires. In general, lessors’ instructions have not changed with regard to the types of damage to evaluate.
“As of today, we continue to report the same data to the credit companies,” said Andrew Snetsinger, director of North American sales and marketing at third-party inspection company AutoVIN Inc. “They have not contacted us to be more vigilant than before.”
Ford Motor Credit Co., GMAC LLC, and Toyota Financial Services echoed that claim. “Our instructions to vehicle inspectors are the same as they have always been: Report every chargeable item, nothing more and nothing less,” said Ford Credit spokeswoman Meredith Libbey. “Our goal with lease-end inspections is to provide a consistent, accurate evaluation of a vehicle’s condition. We have explicit standards for mileage, what constitutes normal use, and what is chargeable at lease-end.”
“We have also maintained the same processes for establishing and collecting lease-end charges,” she added, declining to disclose the average lease-end fees assessed or those generally waived.
Lessors have historically waived certain end-of-term fees to engender customer loyalty. For captive lessors especially, that philosophy still holds true, even for those exiting the leasing space. Chrysler Financial, for example, may want to switch a lease customer into a loan. “They don’t want to make [the customer] mad,” Shebesta said. “That could affect them buying a Chrysler product.”
Dealers, too, may pay certain lease-end fees on behalf of lessees when negotiating the sale of a new vehicle, said GMAC spokesman Michael Stoller Jr.
On the flip side, though, being strict with lease-end fees could bolster end-of-term sales — a more lucrative scenario for lessors. The lessee would rather buy the car at a reduced rate than shell out thousands of dollars to pay wear-and-tear or over-mileage fees, Shebesta said.
Alternatively, rather than entice lessees to buy vehicles at lease-end, some lessors offer incentives to dealers. World Omni Financial Corp., for one, has been doing that for a couple years, said Dan Chait, a group vice president.
—Marcie Belles