LOS ANGELES – Car dealers like leases, but Stephanie LeBlond of American Honda Finance warns of overdoing it.
“You could say, ‘Gosh, 100% of our portfolio should be leasing,’ and some of our dealers are almost there,” she says. “But as a conservative company, we can’t do that.”
After bottoming out three years ago, vehicle leasing is resurging. To some extent that worries LeBlond, assistant manager-sales and marketing for Honda’s captive financing arm.
“If we throw (overly) generous incentives at customers to lease, they become less loyal,” she says here at the Automotive Customer-Centricity Summit hosted by Thought Leadership Summits.
Honda offered an average of $1,554 in incentives per car in August, ranking No.4 in such spending behind Chrysler, Ford and General Motors, says Edmunds.com.
“We live in an incentive world,” LeBlond says, adding that her firm uses “a surgical application of funds.” Honda’s incentive spending rose as part of a sell-down of the ’12 Accord to make room for the all-new ’13 model.
Only 47% of U.S. consumers stuck with the same brand when buying or leasing a new vehicle last year, says data cruncher Polk.
“That is better than 44% in 2002, but if incentives go up are we better at capturing customers or at capturing their wallets?” LeBlond says. “We have to work hard to keep them.”
Many dealers credit leasing for retaining customers.
National Automobile Dealers Assn. Chairman William Underriner says he prefers to see customers lease than buy at his Montana dealership because at the end of a 24- or 36-month lease, they are back, deciding what to get next.
Leasing increased to 2.1 million cars in 2011, a 17% gain over 2010 and an 85% surge compared with the low-point of 1.1 million leases in 2009, the year General Motors and Chrysler dramatically backed off leasing while heading toward bankruptcy.
Done right, leasing is a financial product that benefits everyone: consumers, dealers, auto makers and their financing subsidiaries, says Tom Webb, chief economist for Manheim Consulting.
Done wrong, an auto maker uses lease deals as a crutch to move the metal, and in the process, hurts residual values and brand strength.
“Leasing offers great opportunities, but we have to be careful,” LeBlond says. “We need to help dealers understand the strengths and weaknesses.”
She adds: “Lease-retention performance is something we obsess over daily. It is all about process. We can see what top performers do and how they do it. That is measurable.”
American Honda continues to improve its lease plans, she says. “A new one is a mileage-forgiveness package. There are great product opportunities that help the customer, something we view as fundamentally important.”
Shorter lease offerings would help in some situations, says Brian Benstock, general manager of Paragon Honda in New York City.
Some customers who might be interested in leasing or buying the redone ’13 Accord are thwarted from doing so because they are bound by leases on their current vehicles.
“It seems like there is a disconnect,” Benstock tells LeBlond at the conference. “There are 36-month leases all the time. Wouldn’t it be nice for Honda to have a 24-month lease so customers can get into a newly introduced vehicle?”
Leasing is back in the mainstream, Jim Kucharski, Ally Financial’s vice president-alliance sales, says at this year’s F&I Conference and Expo. “There is plenty of funding and liquidity in the leasing market.”
German luxury brands Mercedes-Benz and BMW are the longstanding leasing leaders, but Korean auto maker Hyundai now is third behind them, notes Dave Duncan, president of Safe-Guard Products, an automotive finance and insurance firm.
“We may wake up to see Ford dealers leasing 50% of their cars,” he says at the F&I conference. “Auto makers may concentrate on leasing as a solution to the rising cost of vehicles.”
Leasing is more popular in certain parts of the country than others, says Alan Bond, vice president-national sales for F&I product provider GSFSGroup.
“It’s regional,” he says. “In the Northeast, leasing is strong, but we don’t see a lot of it in Texas.”
