Automotive News F&I Special Sections of 2008 - (Page MAY26) 26 • MAY 5, 2008 The resilient dealer INSIGHT on used-vehicle leasing, says Halverson, who also operates an independent leasing company. “That’s why we jumped into it.” LEASING continued from Page 25 Lease or buy? Used-vehicle leasing could appeal to budget-conscious consumers who seek lower payments and shorter terms. Figures are for typical loan and lease deals, without a down payment. VEHICLE LEASE LENGTH PAYMENT/MO. LOAN LENGTH PAYMENT/MO. Option creates more showroom traffic Customers like leasing used as well as new vehicles, he says, because it enables them to drive a pricier vehicle or get into another vehicle sooner. David Ruggles, a partner in CyberCalc Arbitrage, a vendor of leasing software, offers this example: A used 2007 Toyota 4Runner SR5 wagon, with four-wheel drive and a V-6 engine, would sell at retail for about $22,000. A buyer who financed the vehicle without a down payment would pay $427 a month, at the prevailing 6.15 ‘Viable’ business Franchised dealers have emphasized new-vehicle leasing because factories subsidize those contracts with incentives. Industry consultant Buzz Doering says many dealers do not perceive used-vehicle leasing as a potential profit center. “It’s not because the business isn’t viable,” says Doering, who owns an independent vehicle leasing company in Milwaukee. But the business poses challenges. Many used-vehicle buyers are accustomed to traditional financing, Klein says. Dealers must sell them on the advantages of leasing. “You have to articulate the benefits of leasing to the customer, regardless of the deal,” he says. “Then you can take a strategy like this and make it work.” Automakers’ captive finance companies generally shun used-vehicle leasing, citing the risks of losses from reselling older off-lease vehicles. Toyota Financial Services says it applies the same finance incentives to new vehicles and factory-certified used vehicles, but it does not offer subsidized leases for used vehicles. “We do very little leasing of certified vehicles,” says George Borst, CEO of Toyota Financial Services. “You take the residual risk on the first lease. That’s always a big risk. When a (used) vehicle comes back off lease, it’s got high mileage. There is not much appetite among dealers for 7year-old vehicles.” That lack of demand hurts used vehicles’ residual values when their leases expire, Borst says. 2007 Toyota 4Runner SR5 39 mos. 2005 Cadillac Escalade ESV 27 mos. Source: CyberCalc Arbitrage $232 $246 60 mos. 60 mos. $427 $485 Toyota Financial Services’ George Borst: “When a (used) vehicle comes back off lease, it’s got high mileage. There is not much appetite among dealers for 7-year-old vehicles.” percent retail interest rate and a 60month term, Ruggles says. By contrast, a standard 39-month lease of the same vehicle, also with no down payment, would cost the buyer $232 a month. The 2008 model of the same vehicle, sold as new, would cost the customer $543 to $558 a month, Ruggles adds, based on available rebates and promotional rates. Dar Halverson, a Suzuki dealer in Rochester, Minn., sells about 80 used vehicles a month, along with 20 new vehicles. He says about 20 percent of his total sales are used-vehicle leases. “Not a lot of dealers locally” focus TIM RIVERS AT A GLANCE: ON THE SP T: ON THE SPOT: RIVERS: ON THE SPOT: RIVERS: Taking tricks Dealer Klein says his used-vehicleleasing penetration dropped to 5 percent when automakers began offering 0 percent financing several years ago. He says he is working to build it back to 20 percent. “There’s a trick to it,” Klein says. “You have to buy a vehicle at close to what its residual value will be at the end of the lease.” That isn’t easy because wholesale values of used vehicles change daily. Residual values — predictions of what vehicles will be worth at the end of a lease — are updated every two months or so. Vendors offer products and services to help dealers make projections of used-vehicle values. CyberCalc Arbitrage, for example, uses automated processes to monitor endof-lease residual values for used vehicles and to track related auction data. “We are looking for vehicles that have the least amount of difference between what they can currently be acquired for and what they sell for,” Ruggles says. “To do all this manually would be frustrating. That is the reason that pre-owned leasing has never found traction.” Tarry Shebesta runs an independent vehicle leasing company in Cincinnati. He says most of his lease contracts are for used vehicles. Shebasta, who is president of the National Vehicle Leasing Association, operates a Web site that promotes usedvehicle leasing, FrontRowCars.com. Says Shebasta: “It’s a niche.” c ON THE SPOT: RIVERS: ON THE SPOT: RIVERS: ON THE SPOT: RIVERS: ON THE SPOT: ON THE SPOT: RIVERS: RIVERS: http://www.CUDL.com/tim http://www.CUDL.com http://www.CUDL.com http://www.FrontRowCars.com
Table of Contents Feed for the Digital Edition of Automotive News F&I Special Sections of 2008 Automotive News F&I Special Sections of 2008 Automotive News F&I Special Sections of 2008 - (Page Cover1) Automotive News F&I Special Sections of 2008 - (Page JAN18) Automotive News F&I Special Sections of 2008 - (Page JAN19) Automotive News F&I Special Sections of 2008 - (Page FEB70) Automotive News F&I Special Sections of 2008 - (Page FEB71) Automotive News F&I Special Sections of 2008 - (Page FEB72) Automotive News F&I Special Sections of 2008 - (Page FEB73) Automotive News F&I Special Sections of 2008 - (Page MAR20) Automotive News F&I Special Sections of 2008 - (Page MAR21) Automotive News F&I Special Sections of 2008 - (Page APR30) Automotive News F&I Special Sections of 2008 - (Page APR31) Automotive News F&I Special Sections of 2008 - (Page JDB2) Automotive News F&I Special Sections of 2008 - (Page MAY25) Automotive News F&I Special Sections of 2008 - (Page MAY26) Automotive News F&I Special Sections of 2008 - (Page MAY27) Automotive News F&I Special Sections of 2008 - (Page MAY28) Automotive News F&I Special Sections of 2008 - (Page MAY29) Automotive News F&I Special Sections of 2008 - (Page MAY30) Automotive News F&I Special Sections of 2008 - (Page MAY31) Automotive News F&I Special Sections of 2008 - (Page MAY32) Automotive News F&I Special Sections of 2008 - (Page MAY33) Automotive News F&I Special Sections of 2008 - (Page MAY34) Automotive News F&I Special Sections of 2008 - (Page MAY35) Automotive News F&I Special Sections of 2008 - (Page MAY36) Automotive News F&I Special Sections of 2008 - (Page MAY37) Automotive News F&I Special Sections of 2008 - (Page MAY38) Automotive News F&I Special Sections of 2008 - (Page MAY39) Automotive News F&I Special Sections of 2008 - (Page MAY40) Automotive News F&I Special Sections of 2008 - (Page MAY41) Automotive News F&I Special Sections of 2008 - (Page MAY42) Automotive News F&I Special Sections of 2008 - (Page JUN24) Automotive News F&I Special Sections of 2008 - (Page JUN25) Automotive News F&I Special Sections of 2008 - (Page JUL26) Automotive News F&I Special Sections of 2008 - (Page JUL27) Automotive News F&I Special Sections of 2008 - (Page AUG32) Automotive News F&I Special Sections of 2008 - (Page AUG33) Automotive News F&I Special Sections of 2008 - (Page SEP30) Automotive News F&I Special Sections of 2008 - (Page SEP31) Automotive News F&I Special Sections of 2008 - (Page OCT48) Automotive News F&I Special Sections of 2008 - (Page NOV26)
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