The Resurgence of Leasing: A Strategic Opportunity for Dealerships
After a challenging few years marked by the pandemic and chip shortages, leasing is making a strong comeback. Before these disruptions, leasing accounted for a significant share of vehicle sales. Now, as the industry recovers, it presents a valuable opportunity for dealerships to increase sales, improve customer retention, and enhance profitability. In this article, we’ll explore the strategic benefits of leasing for car dealers and why it’s essential for maximizing market potential
While leasing may not suit every customer, its affordability and flexibility make it an excellent alternative in an era of rising vehicle prices. Unfortunately, many dealerships and manufacturers have yet to fully embrace leasing, often due to a lack of understanding among both salespeople and customers.
1. Customer Affordability: Meeting Demand in a High-Priced Market
Leasing offers customers the chance to drive a new vehicle at a lower monthly cost than traditional financing. This is especially important as vehicle prices continue to climb, with the average cost of a new car reaching $48,334 in 2023, according to Kelley Blue Book. For budget-conscious buyers, leasing provides access to features and models they might otherwise find out of reach.
As a result, this affordability opens the door to a broader customer base, enabling dealerships to capture sales that might otherwise be lost. Therefore, leasing becomes a critical tool for meeting demand in today’s high-priced automotive market.
2. Boost Customer Retention with Shorter Trade Cycles
Leasing creates a faster trade cycle, with most lease terms lasting between 24 and 36 months. In comparison, traditional financing typically averages a six-year term. Consequently, leasing provides dealerships with more frequent opportunities to engage with customers.
Customers who lease and have a positive experience are more likely to return for their next vehicle, fostering long-term loyalty. Studies have shown that repeat customers spend 67% more than new ones, underscoring the value of retaining lessees within your ecosystem. Thus, leasing not only drives initial sales but also strengthens customer retention in the long run.
3. Enhance Service Department Retention and Revenue
Lease agreements often stipulate regular maintenance, which encourages customers to return to the selling dealership for scheduled services and repairs. This not only increases service department revenue but also strengthens customer relationships.
According to statistics from Cox Automotive, 74% of customers are more likely to purchase their next vehicle from the dealership where they service their current one. Therefore, leasing helps establish a recurring cycle of engagement, benefiting both sales and service departments.
4. Build a High-Quality Pre-Owned Inventory
Leased vehicles typically come back to dealerships at the end of their terms, offering a steady supply of high-quality, late-model pre-owned cars. Since leased vehicles are often well-maintained due to mileage restrictions and service requirements, they present an excellent opportunity for dealerships to enhance their used car inventory.
Moreover, dealerships can reduce pre-owned inventory costs by purchasing these vehicles from the lessor and reselling them. Given that demand for used vehicles remains strong—the average price of a used car in 2023 was $26,799, according to Edmunds—this strategy significantly enhances profitability and inventory management.
5. Leverage Manufacturer Marketing and Incentives
Manufacturers play a pivotal role in driving leasing demand through marketing campaigns and attractive incentives. For instance, special lease offers and programs, such as “pull-ahead” and “conquest” specials that encourage early lease renewals, create a steady flow of customers into dealerships.
These incentives often result in lower monthly payments and increased customer interest, making it easier for dealerships to close deals and maintain a competitive edge. Consequently, manufacturers and dealerships alike benefit from the increased leasing activity and customer engagement.
Addressing the Challenges of Leasing
While the benefits of leasing are clear, its potential often goes untapped due to a lack of knowledge. Therefore, salespeople need proper training to explain leasing’s advantages to customers, breaking down complex terms like residual value, money factor, and mileage limits.
Similarly, educating customers on the long-term value of leasing—such as lower repair costs, newer technology, and flexibility—can alleviate concerns and make leasing a more attractive option. In turn, prioritizing leasing in car sales becomes even stronger as dealerships empower their teams and customers with knowledge
Why Dealerships Should Prioritize Leasing
Leasing represents a powerful opportunity for dealerships to adapt to market challenges, meet customer needs, and drive growth. By focusing on affordability, retention, and inventory management, dealerships can reap the rewards of increased leasing penetration.
With proper education and a commitment to promoting leasing as a viable option, dealerships can unlock new revenue streams and establish stronger, longer-lasting relationships with their customers. In conclusion, the importance of why dealerships should prioritize leasing in automotive sales cannot be overstated—it’s time to embrace its resurgence and harness its full potential
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