Increase Lease Penetration Rates to Combat Shrinking Profit Margins
Editor’s Note: A special thanks to contributor, Billy Reynolds, Eastern Regional Vice President of Sales for Elead. As an expert in Leasing and Equity Mining strategies, Billy has helped sales teams increase profits utilizing automotive retail technology at the dealer level and as a vendor partner for almost two decades.
As profit margins continue to shrink on new vehicles, what’s your strategy to make up some of that lost profit? I’ve talked with dealers who are pushing more extras like extended warranties, buying more leads or hiring more staff. But we all know that in this type of market, trying to stay competitive can be a race to the bottom and additional expenses don’t always equal results.
I believe a better strategy is to focus on increasing your volume and decreasing your trade cycle through better maintenance of your lease portfolio. Inside every CRM there should be a recession-proof book of business that requires few budget dollars to reach.
A high percentage of your lease customers are already accustomed to coming back to your dealership for maintenance. They also boast a shorter trade cycle of 24-48 months, compared to five- to eight years for a sold vehicle. Play your cards right and you’ll have lease customers coming in every couple of years to trade-up, resulting in more service revenue opportunity, PLUS, a continuous stream of off-lease vehicles to boost your used car inventory.
Yet, most dealership’s lease portfolios are only five to 10% of total business. You can easily double or triple that penetration by making a few minor adjustments to your sales processes.
Train the Benefits of Leasing
First, train your salespeople on the benefits of leasing and how to present finance and lease options to customers. This step is critical. Most car shoppers intend to finance their vehicles but in many cases, leasing makes more sense. Your salespeople need to know who these ideal candidates are and when it makes more sense to lease, and they need to be able to clearly articulate those reasons.
Additionally, your salespeople should offer different finance and lease options to customers early in the sales process. Earlier is better because the customer has time to process and think about the benefits of leasing compared to financing. To break the ice, ask questions during the sales information gathering process, such as “Mr. Customer, do you prefer traditional financing or residual based financing?” or “Are you familiar with the benefits of residual based financing?”
Desking tools integrated with rates and residuals make it easy for your sales managers to present lease information. The best desking tools offer grid presentations that display up to nine different financing and lease options so customers can see side-by-side comparisons.
Next, have your sales managers find the monthly “sweet spots” for potential lease vehicles on your lot and print out this information for every salesperson to study. Make sure these offers match the marketing messages on your website, social media & SEO/SEM. For example, I know of a CDJR dealership that identified a legitimate 39-month lease on a $35,000 Jeep Grand Cherokee for well under $400 a month. It was a great opportunity to get into an expensive new vehicle for a budget friendly payment. Because the salespeople knew about it, they could speak about, it and customers snapped it up.
Finding Lease Customers
Have your salespeople present lease options to every showroom up and appointment. You’ll be surprised how many customers will choose the option if presented.
Additionally, mine your CRM for a list of current customers with leases maturing in the next 6 months. Create campaigns to contact these customers so they can schedule their new vehicle selection and transition into their next lease vehicle. Your message should be compelling, relevant and reflect an easy process for the customer to come in for another lease.
The key here is to have a script that clearly states the benefits of leasing to the customer.
Your CRM should also allow you to easily pull a list of customers who are trending to go over lease mileage. Have your salespeople or BDC call these customers (again, using a call guide) to offer an end to the current lease without paying for any extra mileage or penalties if the customer enters into a new lease.
Increasing lease penetration rates is a sound strategy to combat shrinking margins and build a book of virtually recession-proof business. Train your sales staff to always present a lease option, find those “sweet spot” deals on leasable vehicles, and mine your CRM for existing lease opportunities. Set a goal of increasing your lease portfolio to 40-50%, because if vehicle sales continue to slow, profit margins continue to shrink and you don’t stay on top of volume, you’ll be left in the dust.