From the February issue: With new-car purchases lagging and used-values increasing, captives and OEMs are reimagining lease products to keep their customer bases growing.
Roughly a decade ago, 1.4 million new vehicles were leased — a 16% penetration rate. Fast forward to 2019, and lease volume is expected to reach 4.1 million, with penetration as high as 31%, according to Edmunds.
To maintain penetration levels, however, financiers will have to look beyond their existing customer networks. “The biggest challenge for leasing is the fact that the base of buyers is going to be repeat buyers,” Jeremy Acevedo, manager of industry analysis at Edmunds, told Auto Finance News.
On top of that, lenders need “flexibility in leasing” to attract new customers, Geoff Robinson, vice president of Mercedes-Benz Financial Services, told AFN. Industrywide, captives are diversifying lease terms, marketing certified pre-owned programs and experimenting with subscription service models.
Leasing Favors Customer Experience
Lease terms cater to customer preference, arguably more so than traditional loans, Robinson said. “[Mercedes-Benz Financial] wants customers to come into the product and stay in the product,” he said. “To do that, [lenders] have to establish trust and transparency. There are more touchpoints with the consumer than a loan contract, you have to bear that out.”
By “touchpoints,” Robinson is referring to the various forms of contact by which lenders provide consumers with transparent information. “Treat customers individually and present [information] upfront,” he said.
Mercedes-Benz Financial, which provided leases for nearly half the vehicles it sold last year, is open to buyer flexibility with lease terms that go out to 60 months, Robinson said. Additionally, the captive focuses on training F&I professionals across its 385 franchise dealerships in the U.S. with the proper dialogue to communicate with consumers about lease contracts.
“That’s the key to success — making sure the customers’ needs are understood and customers can access the information needed,” Robinson said. “Keep their eyes open to the experience of leasing as a viable option to mobility. If we don’t do it right, then we lose that customer.”
The captive’s U.S. portfolio consisted of 491,000 lease contracts totaling $23 billion as of Sept. 30, 2018, according to a recent S&P Global Ratings presale report.
Though lease volume and penetration rates have held steady industrywide since 2016, according to Edmunds, the loan-lease ratio has shifted at Kia Motor Finance. Leases accounted for 51% of the portfolio last year, down from 57% in 2017, Hyundai Capital America National Sales Director John Thacker told AFN. On the Hyundai brand side, the portfolio mix has been steady at 39% loan to 61% lease, according to an S&P Global Ratings presale report.
Thacker attributed the pullback in leasing for Kia vehicles on more aggressive retail loan incentives. The OEM “went heavier on cash” last year, which tends to make leasing less attractive, he said. “Consumers tend to go with the bank with the lower rate,” he added. However, HCA’s lease mix is higher for Hyundai because consumers are typically “good credit customers,” Thacker said. Meanwhile, Kia has more “marginal credit consumers,” with fewer people qualifying for leases, he said.
In spite of Kia’s lower lease penetration, the loyalty with consumers is a “must-have” for strong branding initiatives, Thacker said. “Kia lease is an important product because the Kia buyer is typically a younger buyer,” he said. “It’s a great way to introduce people to the brand with very low risk.”