By Desiree Homer
Dealers nationwide are experiencing a welcomed and much-need rally of sales numbers as local economies reopen for business. While the sales transactions are climbing, and retail stores are banging the cash registers, dealerships are noticing one revenue channel that seems to be lagging behind the others. Leasing departments aren’t seeing the same robust return in numbers. Should dealers be concerned? And what would a decline in lease revenue mean for other profit segments?
Lease Revenues Are Important
Almost one-third of all new vehicle sales are lease structured. As a result of the imposing COVID-19 shutdown conditions, two of the most significant leasing markets, New York and Michigan collapsed to levels that rival the lowest numbers back to 2015. According to the Experian analysts, leasing fell 24% in April alone. As a result, automakers, hoping to spark consumer confidence and demand, began offering incredible loan incentives to buy. This somewhat stalled the attractiveness of a lease. Now that business returns and demand is experiencing a rebound, manufacturers are allowing those loan perks to expire. But leasing levels continue to be below normal. Senior Director for automotive financial solutions for Experian, Melinda Zabritski, says it’s “hard to tell” when normal comes back. She goes on to say that speculating in these unprecedented conditions is tough, although it does make sense at the automaker level, to lean away from leasing for now.
Reduction of New Vehicle Inventory
Part of the stall in leasing numbers has to be attributed to the lean new vehicle inventory right now. As a result of automaker shutdowns during the onset of the pandemic, new cars are scarce. Those customers who held onto their expiring leases through the shelter-in-place orders would soon start returning to their dealerships, only to find the replacement models they wanted were in short supply. Some customers would decide to wait it out. But others were persuaded to make vehicle purchases and take advantage of attractive loan incentives.
Fewer Leases Means Potential for Increased Sales
If consumers are returning their off-lease vehicles, but opting not to renew, they may be ready to buy. Leveraging the vehicle returns as a unique audience for new car or certified pre-owned purchasing can be a healthy, revenue-generating alternative to lackluster lease renewals. Dave Cantin recently sat down with Cox Automotive Executives, Tracy Fred, and Wayne Pastore, where reimagining a new landscape may be the way to avoid regression. They suggest dealers “lean into customer preferences and data,” which would include finding profitable solutions around these latest mediocre lease numbers. Dealers are best served by aligning their “strategies to experiences and processes” that matter to their markets.
The trends are sure to vary by market, and dealer groups may report different rebound paces for new and used sales, as well as leases. The analysts suggest leasing is slow to rally for now. But it can translate to car buying alternatives. And as with every other auto industry arm and segment, the lease revenues will rebound eventually, too.