Leasing Protection Plans Gain Popularity

The lease penetration rate at the Charlie Obaugh Auto Group in Staunton, VA, isn’t too high, about 15%, says finance and insurance manager Brad Hull. He’d like to earn more on lease deals, and he is finding ways to do that.

If a dealership makes nothing on the front and nothing on the back end, “that’s not fun,” Hull says.

Leasing long has been popular as a way for consumers to get behind the wheel of a luxury vehicle. Mainstream leasing of less-expensive products surged and then fell at the end of the last decade.

Now leasing is on the rise, and dealership F&I departments are looking for ways to earn money from those deals.   

The Obaugh group includes GMC, Mazda, Kia, and Buick franchises. Hull offers auto makers’ lease products, such as General Motors’ GM Smart Protection plan.   Hull has started offering Easy Care dent repair, interior protection and key-replacement F&I products to his lease customers.  

“If you get a door ding, you don’t have to wait until the end of the warranty to get it repaired,” he says.

Sales have been growing, says David Colville, director-training and business development at Easy Care. “Leasing is buying something that fits into your budget.”

He advises dealers to offer the dent repair and key-replacement plan for free for the first year.  Customers can pay to add more years if they wish, he says.  “It is designed to be a customer-retention tool,” he says. 

New-car leasing has been recovering over the past four years after plunging to 17.7% in 2009, according to Experian. It rose to 24.4% last year.   

Luxury brands have the highest lease penetration rates, such as 73% for Mercedes-Benz and 61% for BMW. But leasing is growing faster in non-luxury segments.  

“Leasing rates are very volatile, but we are seeing an upward trend,” says Eric Lyman, vice president-residual value forecaster for ALG, a firm that tracks and sets leasing residuals.

He attributes the increase mainly to more auto makers offering leasing. “It’s not because the lease penetration is going straight up, but because brands that haven’t done a lot of leasing are picking it up,” he says.   

There are benefits to leasing other than selling vehicles and F&I products. Dealers get first right of refusal on the leased vehicle when it comes back. Moreover, the dealer has a better shot of doing a new deal with an established customer.

“These people are coming back; they are fans of the brand in the first place,” Lyman says. 

Dealers that aren’t going after F&I business with their leasing customers are leaving money on the table, says Rebecca Chernek, president of Chernek Consulting.

“A lot of the stores don’t have a menu for a lease deal,” she says. “They are losing opportunities by not presenting a menu here.”

That might be attributable to a lack of knowledge about F&I products for lease deals, but Chernek suspects it is also because F&I managers haven’t been properly trained to present products to lease customers. 

“I can’t tell you it will be as profitable as a financed deal, but I do think there is some meat on the bone,” she says.    

Choosing the F&I product that fits the model is important, says John Hawkins, president of Great Metro Auto Group, selling Hondas and Acuras in Montclair, CA.

When someone leases a Honda cross/utility vehicle, Great Metro suggests a factory-made roof rack or trailer hitch. Factory wheel upgrades also are a good add-on that can be residualized in the payment, Hawkins says.

“Each store’s F&I department tries to get a little more creative and do things that help their brand,” he says.

There are assorted F&I opportunities when leasing luxury vehicles, says Peter Boesen, general manager of South Bay BMW in Torrance, CA.

His store “absolutely” tries to sell additional F&I products to lease customers, such as maintenance plans and wheel-and-tire protection. BMW vehicles are equipped with run-flat tires that can cost $700 to replace, Boesen notes. 

The Obaugh group’s Mazda and Kia stores have just started offering manufacturers’ protection packages for leased vehicles, with the $600 cost amortized over the life of the lease. 

“It is nice to have something to offer the lease customers,” Hull says.