Keeping Customers in the ‘Fold’
The biggest challenge with leasing, Acevedo said, is how lenders retain existing customers. Enter a beefed-up, certified pre-owned program.
Mercedes-Benz Financial, HCA, and NMAC collectively attribute customer loyalty and reduced risks to leasing CPO vehicles. Additionally, CPO programs provide dealers with shorter trade cycles and consumers with more reliable vehicles. “We spend a lot of time talking about the loyalty message,” HCA’s Thacker said. “What’s the point to conquest new customers if you’re watching your existing customers peel off?”
To that end, HCA favors a shorter lease term — 24 months — in a bid to drive consumers back to the dealership earlier than 36 months. This strategy creates a strong lead list for the captive’s dealer partners. “Dealers have access to pull the pending leases that are going to terminate soon and have access to [consumers] early on before their lease term is up,” Thacker said. A strong certified pre-owned program is a driver of higher leasing volumes since it allows off-lease vehicles to have a great landing spot, and presents an attractive option for consumers.
As the market continues to experience rising residual values, it’s timely for lenders to take advantage. Rising residual values have created a strong used-car market, which has had a “positive impact,” for captives and their leasing programs, Thacker said. “[HCA’s] loss on terms is down because used values are up,” he said. What’s important for lenders is to strategize where to allocate money for residual losses. “Any lender in leasing has to keep an eye on residual risk,” Thacker said. “Make sure the portfolio is balanced, [and] residual losses are not excessive. It’s about finding the right balance of reserve. If you reserve too much, you leave business on the table. If you don’t reserve enough, you have losses.”
Additionally, with an influx of off-lease vehicles coming into the market under 10,000 miles, 2019 is slated to serve as another good year for leasing, Robinson said. Dealers access and use the Mercedes-Benz version of a CPO program, which the captive calls a courtesy vehicle program, to make the cost of mobility “digestible” for consumers, Robinson added.
Boosting leasing volumes includes shortening or extending term lengths, experimenting with subscription programs, and pushing CPO programs through dealerships. However, to have a successful leasing model is about sustainability and customer loyalty within the multiple ways of presenting leasing as a mobility option, Robinson said.
“Remember on the back end that the customer needs to feel that everything is handled,” he said. “Have a remarketing channel at the end of the contract to be sure you have an end to the channel. Remarketing the off-lease vehicles with our dealer network is a key to success with our sustainability.” To think a dozen years ago, HCA didn’t have a lease option for consumers.
“To have no leases and to see 12 years go by and now [leasing] is 50% to 60% of the portfolio, it’s been a very good growth product for both the dealers, OEMs, and captives,” Thacker said. “We’ll ride this wave as long as we can.”