Driven by a Consumer Affordability Crisis, Leasing is gaining in Popularity

News
3 min read

The U.S. car market is poised for a transformative year in 2024. With used car prices falling and new vehicle production nearing pre-pandemic levels, dealerships face unique challenges and opportunities. As inventories normalize, OEMs are increasingly using incentives to influence consumer behavior, particularly in the leasing sector.

The Shifting Landscape of Car Leasing

Vehicle leasing, once a popular option for nearly one-third of American buyers, saw a decline during the pandemic. Scarcity of inventory resulting from parts and chip shortages drove up transactional prices as dealers controlled prices and selling conditions. With affordability being top of mind, longer finance terms ensued because consumers made their decisions driven by affordable monthly payments. With inventory scarcity, OEMs shut off the use of incentives which almost brought leasing to a halt.

However, the landscape is changing. Market intelligence from Expert Market Research indicates that the leasing market is projected to witness substantial growth from 2024 to 2032. Affordable monthly consumer payments will fuel that growth, but several other factors are driving this resurgence:

  • Increase in Subscription-Based Models: Subscription-based car leasing models are gaining traction, offering consumers the flexibility of car use without long-term commitments.
  • Popularity of EVs and Hybrid Vehicles: Leasing companies are expanding their offerings to include a variety of electric and hybrid models, appealing to eco-conscious consumers.
  • Technological Advancements: Connected car services and advanced mobile applications enhance the leasing experience by providing real-time performance monitoring, maintenance alerts, and other value-added services.

Why Leasing makes Sense for Dealers

For dealerships, embracing a strong leasing portfolio is not just beneficial; it’s essential. Here’s why:

  • Revenue and Profitability: Leasing can significantly impact dealership profitability. With inventories normalizing, OEMs are likely to increase leasing incentives. These incentives can make leasing more attractive than traditional financing, driving more customers towards lease agreements. With leasing cycles generally mimicking new-car warranty schemes, lease customers tend to be more loyal, returning to the same dealership for service and subsequent purchases, thereby boosting long-term revenue.
  • Customer Retention: Leasing offers a shorter customer lifecycle compared to long-term financing. During the pandemic, many consumers opted for 72-84 months’ finance terms due to limited inventory and high prices. This extended finance period means fewer opportunities for dealerships to sell new vehicles to existing customers. In contrast, leasing typically involves a three-year cycle, providing dealers with more frequent opportunities to engage with customers and secure repeat business.
  • Addressing Negative Equity: Leasing can help address negative equity in new car sales. With the rising cost of new vehicles, many consumers find themselves owing more on their car loans than their cars are worth. Leasing can mitigate this issue, offering a more attractive and manageable financing option that can enhance customer satisfaction and loyalty.
  • Brand Loyalty: Leasing has the potential to influence brand loyalty significantly. Customers who lease vehicles are more likely to remain brand loyal, especially when they have a positive experience with their dealership. By providing attractive lease deals and superior service, dealerships can strengthen their relationship with customers, encouraging them to stay within the brand for future vehicle purchases.
  • Adapting to Market Trends: Recent trends, such as Tesla’s price reductions on models Y and 3, highlight the competitive nature of the current market. Traditional OEMs and franchised dealers must adapt by offering compelling leasing options to attract consumers. By staying competitive in the leasing market, dealerships can maintain a strong market presence and meet the evolving needs of their customers.

In 2024, the leasing market presents a unique opportunity for dealership management to enhance their revenue streams, improve customer retention, and adapt to stay relevant given the shifting market trends. As OEMs increase incentives and inventories return to normal levels, now is an opportune time for dealerships to prioritize leasing as a key element of their customer portfolio. Embracing leasing can lead to increased customer satisfaction, loyalty, and profitability, making it a strategic move for any dealership.

Reference: Cox Automotive’s Forecast: 2024 – A Return to Normalcy in the U.S. Auto Market, published on January 3, 2024, provides detailed insights into the expected trends and economic conditions influencing the automotive market in 2024.

https://www.coxautoinc.com/news/cox-automotives-forecast-2024-a-return-to-normalcy-in-the-u-s-auto-market/#:~:text=In%202024%2C%20Cox%20Automotive%20is,Days’%20supply%20will%20stay%20healthy

Author : Becca Villegas

Chief Operating Officer

Prior to joining Mach10, Becca held key roles in Inventory Management, Sales Operations, and Dealer Relations Management for Mercedes-Benz USA & Mercedes-Benz Financial Services (MBFS). Most recently, Becca served as the Operations Director for a prominent dealership group encompassing 14 new car franchises.

Denyn Pysz

Sales Director

Denyn is a dynamic automotive sales leader with over 20 years of experience, recognized for his expertise in technical certifications, retail sales, and service. With a proven record of driving growth, Denyn has excelled in key management roles across dealership operations, equipping him with a comprehensive understanding of dealership needs at every level. Known for his ability to build high-performing teams and deliver revenue growth, his innovation-driven approach and industry insight make him a trusted authority in automotive sales and service. At Mach10, Denyn advises our clients in Sales, Service, F&I, and Operations, guiding them toward optimized performance and success.

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Kathi Kruse

Financial Operations Analyst

Kathi Kruse is a uniquely qualified and accomplished automotive retail advisor. Recognized as a dealership profitability specialist, digital strategist, trainer/coach, podcaster, and author, Kathi is the creator of the Kruse Control Newsletter, and Founder/CEO of Automotive CFO-To-Go, and Kruse Control Inc.  Born in the heart of Los Angeles to a family of “car people”, Kathi’s passion for the car business spans a 25-year automotive retail career, managing wildly successful $100M+ stores in Southern California. Her exceptional experience, combined with her innovative methods, has led to transformational outcomes and increased profits for over 1,000 clients to date.

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Chris Pero

Managing Director

Chris’ automotive experience spans over a decade in both retail and wholesale. Chris has provided support by growing an auction company at the management level in southern California, and most recently, he was a part of the management team at a Ford and Lincoln dealership.Through his unique experience and determination, he has a proven track record of growth and success and understands the unique needs of the dealership at every level.

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George Pero

President & CEO

Extremely accomplished leader in the automotive industry recognized for his success in retail and remarketing. George’s career achievements include successfully launching and running Auctions In Motion (“AIM”), a regional “mobile” auction company that brings the auction to the dealer. George also holds a wealth of knowledge & expertise in mergers & acquisitions in the automotive sector. He recently served as the Vice President of a national brokerage firm where he was one of the top producers. His experience in the M&A industry brings a keen sense of the due diligence process as well as the art of negotiating while representing both seller and buyer.

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Michael Yanke

Vice President Marketing, M&A

Michael has demonstrated success in expanding multimillion-dollar sales and fostering growth while providing sales leadership in highly competitive global markets. Michael brings decades of marketing management with a proven record of achievement. For over 25 years, he has been successful at building new businesses, securing client loyalty and forging strong relationships with external business partners. His extensive knowledge of marketing strategies, channels, and branding has helped companies achieve success through his leadership, communication, and collaboration abilities.

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Jon Karasek

Vice President

Having recently held the position of Regional Director of Digital Strategy and Innovation for the industry’s largest independent auto auction group, Jon’s skills range from mechanical/technical certifications to wholesale and retail sales. Jon was recognized for leadership accomplishments when honored with the 2021 Automotive Remarketing 40 Under 40 Award. He is an accomplished auctioneer with over 20 years of experience in the automotive industry. Jon graduated from the World Wide College of Auctioneering, and then excelled as the GM of one of Southern California’s premier wholesale auto auctions.

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Chris Pero

Director, M&A

Chris’ automotive experience spans over a decade in both retail and wholesale. Chris has provided support by growing an auction company at the management level in southern California, and most recently, he was a part of the management team at a Ford and Lincoln dealership.Through his unique experience and determination, he has a proven track record of growth and success and understands the unique needs of the dealership at every level.

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David Foley

Director, Dealer Operations

David is a seasoned automotive executive with over twenty years of industry experience. As a results-driven Sales Manager, he consistently delivers impressive revenue growth and prioritizes customer satisfaction. Renowned for his ability to build and lead high-performing teams, David’s visionary approach and innovation-driven mindset keep him at the forefront of the automotive sector. His unwavering integrity and keen eye for industry trends position him as a trusted leader actively shaping the future of automotive sales.

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Sam Abergel

Director, Fixed Operations

With over four decades of automotive industry experience, Sam’s impressive career began in sales at a Chrysler Plymouth dealership, where he was promoted to Service Manager within 18 months. Noteworthy achievements include leadership roles as the President of the Parts and Service Managers Guild in Los Angeles and representation on the Porsche North America Round Table. Sam’s extensive experience and track record of performance improvements includes orchestrating successful dealership transitions, managing and growing service and fixed operations as a transformative leader at Chrysler-Dodge, Audi, Lexus, and Porsche dealers. At Mach10, our clients benefit from Sam’s expert knowledge in driving dealership profitability through strategic guidance, coaching, and creating tailored client solutions.

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Shasta Pellegrino

Executive Administrator

Shasta is a dynamic professional who excels at identifying and implementing effective solutions to complex problems. Her dedication to Mach10’s administrative needs and her commitment to excellence make her an invaluable asset. Shasta's passion for working closely with people and ability to collaborate seamlessly with colleagues and stakeholders alike makes her a perfect fit for the Mach10 team. With her blend of administrative expertise, people skills, and proactive approach to problem-solving, Shasta is poised to contribute significantly to the success and growth of our team and our client partners.

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Carsten Preisz

Chief Marketing Officer

Carsten’s extensive achievements includes introducing and establishing Dutch Supercar Spyker in the Americas and holding senior management/executive positions with esteemed and iconic automotive OEMs to include Rolls-Royce, Bentley, Peugeot, and Fisker Automotive. Most recently, Carsten’s contributions with Market Scan Information Systems, Inc., were key to the company being acquired by S&P Global Mobility.

Whether the challenge calls for creating the customer standards for Bentley/Rolls-Royce or being responsible for the Los Angeles Marathon TV-broadcast, which led to an Emmy nomination, Carsten is instinctually entrepreneurial and an out of the box thinker who enjoys solving strategic challenges to elevate the client experience and maximize profitability.

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