With new vehicle shortages, sourcing more preowned inventory has never been more vital to a successful dealership. With inventory constraints, prices have soared, and dealers have stretched loan terms to make payments affordable.
Let’s consider the implications that come with higher purchase prices and longer financing terms. What impact will this have on future vehicle sales? Ideally, dealers want customers to trade in their vehicles every three to five years. Shorter buying cycles create more sales and profit opportunities for the dealer. Unfortunately, reality is different.
Dealers are paying too much for used vehicles and customers want to drive vehicles they cannot afford. Ninety percent of today’s buyers never carry their loan to full term and most have negative equity in their trade. For these reasons, it has become common for dealers to write 72- or even 84-month contracts to get lower payments.
Dealers are taking the customer out of the market for five-plus years. This will hurt dealerships’ sales and profitability down the road when customers are too upside down to trade in their vehicle.
Forget What You Think You Know About Used Vehicle Leasing
Used vehicle leasing in the past was not successful. Residuals were not accurate, only prime or super prime customers could get approved and systems were not easy to use. Times have changed. The focus and support of used vehicle leasing is at an all-time high. Used vehicle leasing is necessary to offset the long-term contracts dealers are writing today. Without more short-term finance options, the auto industry will struggle three to five years down the road.
Why Used Leasing Options Are Important for Dealerships to Offer
You will have more finance options to get the customer to a payment they feel comfortable with. Customers will have the opportunity to drive the vehicle they want without longer term contracts. They get a lower payment and only pay for vehicle depreciation, which is less on a used vehicle. Customers are 70% more likely to come back to your dealership to trade in a lease. In three to four years, you will have more customers coming off lease or wanting to trade out early with no negative equity.
Used Vehicle Leasing Is a Win-Win Transaction for the Dealer and Customer
With the right used leasing finance company, dealers keep more profits. There are now no chargeback programs, paid at 100%, unique terms for customer and increased front-end and back-end dealer profit. Customers who are buried in their trade have more options with used leases. Dealer advances up to 120% of NADA retail and higher. There is backend allowance on all tiers, the greater of 15% of adjusted cap cost or $4,500, (maximum of $9,500).
Now we have very user-friendly technology platforms that make even a beginner F&I manager seem like a used leasing expert. You can also get approved for used leasing with credit scores as low as 550.
The Used Vehicle Leasing Business Has Changed
The used vehicle leasing business has changed at the right time. Used vehicle leasing can solve many challenges dealers are facing today and give them more finance options for their customers. Dealers will make more profit and have more repeat customers with shorter sales cycles. Used vehicle leasing is a game changer and will make your dealership more successful and profitable not only today but three to four years down the road.