Flexible Lease Terms
HCA’s major initiative for promoting leases is its Hyundai Plus Lease subscription service, a bundled lease that includes prepaid maintenance and car insurance, Thacker said. The program is piloted in Arizona, Illinois, Indiana, Ohio, and Texas.
The captive is also looking to expand the program to its Genesis brand, which boasts a lease penetration rate in the 60% to 75% range. Since launching in July 2018, the performance of the pilot is looking “promising,” Thacker said. Hyundai’s subscription service allows consumers to lease cars on a three-year term with insurance and maintenance bundled into the $279-per-month starting price. That compares to new-car, month-to-month dealership subscription programs that typically start at $1,000 per month.
Additionally, the program has allowed the captive to bolster leasing volumes in Texas, a state whose car buyers usually prefer loans. “Texas — not generally a lease market — generated businesses where we don’t have a big lease portfolio,” Thacker said, noting that 60% of bookings from the program were coming from Texas.
Meanwhile, Mercedes-Benz Financial released its subscription service, called Mercedes-Benz Collection, as a means for recruiting new customers, Robinson said. The program is priced between $1,095 and $2,995 per month, with members paying a one-time activation fee of $495. The service is being tested in Nashville and Philadelphia. The monthly subscription fee for the tier also includes insurance, 24/7 roadside assistance, and vehicle maintenance.
With the subscription market growing rapidly and consumer appetite changing when it comes to obtaining vehicles, “financial and mobility services are evolving to fit those demands,” Robinson said. Subscribers can access any type of vehicle within their tier with no mileage limitations.
A number of OEMs — including BMW USA, Ford Motor Co., Hyundai Motor Co., and Volvo Cars — are exploring subscription services as a more flexible lease. However, these services have come into question by analysts as being too costly for affordability-focused consumers.
“One thing that has become apparent [for subscription services] to the dealership and OEM is that right now prices are just far too high for the vast majority of shoppers,” Acevedo said.
For example, at yearend 2018, General Motors Co. hit the pause button on subscription service Book by Cadillac, after launching two years prior in Los Angeles, Dallas, and New York. As long as they are available, direct-to-consumer leases and indirect leases are more financially viable transactions than subscription leases, Jim Houston, senior director of auto finance at J.D. Power, told AFN. “It’s the cost,” Houston added, noting that a consumer can lease a Cadillac for less than $1,800 a month. “It comes down to getting money for the used vehicle,” Samuel Ellis, principal consultant for Auto Experience, told AFN. “These programs are just going to struggle until they can make the economics work. The discussion needs to center around, ‘What needs to be innovated?’ Describing [a lease] different doesn’t necessarily make it better.”
Still, this year could serve as a “perfect storm” for leasing, Nissan Motors Acceptance Corp. President Kevin Cullum told AFN.
While NMAC has plans in the works to offer consumers a subscription service and sees such programs as “part of the opportunity to grow,” the captive is more interested in diversifying its lease terms by lengthening instead of shortening, Cullum said.
“Short-term leasing has never been huge, especially when you have fleets to compete with,” he said. “It’s difficult to manage a short-term residual at a payment consumers will want.”
To that end, NMAC relies on lengthening lease terms and creating a diverse mix within its leasing portfolio. “A 48-month term is a good extended term. If we can blend our mix where we have [an even] spread between 24-month, 36-month, and 48-month, that will help the portfolio grow,” Cullum said.
Additionally, extending standard leasing terms to 48 months from 36 is likely to increase lease penetration to 30% of its portfolio, he said. However, “the extra year is another year that the customer is not in the trade cycle, which has always been the pushback from dealers in terms of leasing extensions.”
Still, Cullum plans to “push internally for our programs to support a diverse portfolio that will enable [NMAC] to take our lease penetration as high as 30%” — from 26% currently, he said. “It will take an organizational and dealer-supported effort to make sure [NMAC] is managing marketing risk appropriately,” he added.
Meanwhile, plans by parent company Nissan Motor Co. to release new models in the next 18 months will increase leasing penetration in the latter part of NMAC’s fiscal year, which ends March 31, 2020, Cullum said. “As we launch our all-new Sentra, Rogue, and Versa, we will be able to take advantage of increased lease opportunities,” he said. NMAC had $28 billion of leases outstanding as of Sept. 30, 2018.
Conversely, Toyota Financial Services focuses on flexible leasing terms with a short-term leasing bundle approach, but not a subscription service.
In September, the captive announced the Lexus Complete Lease program, slated to launch this quarter. The 24-month, 20,000-mile limit program bundles lease payment, car insurance, and maintenance coverage. “[TFS] works hard to ensure that we capitalize on the opportunities leasing offers us to build brand loyalty and to get those customers coming off lease back into new Toyota and Lexus vehicles,” Karen Ideno, TFS group vice president of product, marketing, brand and remarketing, told AFN.
To attract new and repeat consumers, the TFS and LFS websites have a “Buy or Lease” quiz, which provides consumers information about leasing new or certified used cars, along with financial education resources designed to help in the decision process, Ideno said. “Younger consumers looking to enter the car market certainly have far more choices to consider than previous generations,” she said. “But it isn’t just relative to a customer’s age — those who have traditionally financed the purchase of a vehicle are seeing leasing as an attractive option, as well.”