Join Date: Feb 2001
Location: The Hills of North Georgia,USA
Ford Div. seeks more lease deals
By Arlena Sawyers and Jim Henry
Automotive News / January 27, 2003
More leases, higher share
Ford's Division's Steve Lyons thinks leases can boost market share. Offers include
$1,000 cash rebates on leases of certain Explorer models
Loyalty bonuses ranging from $500-$1,500 for returning lessees
No penalties for early exchanges of Ranger, Taurus and Windstar
$199 monthly leases on the Focus for most of the year
Ford Division, once a major player in leasing, wants to get back into the game in a bigger way.
The company's lease penetration dropped to 12 percent in 2002 from 19 percent in 2001 and 24 percent in 2000. Its market share has been dropping, too: from 19.9 percent in 2000 to 19.2 percent in 2001 to 17.8 percent in 2002.
Ford Division President Steve Lyons said one key to restoring market share is to make leasing a bigger part of the division's retail sales.
"Our leasing mix at Ford Division historically has averaged about 22 percent," Lyons said. "Last year our lease mix was about 12 percent for the total year. Zero percent financing is going to steal a lot of lease deals. But one of the keys to restoring our market share is to get back stronger into leasing."
Leasing is one of the best methods to get payment-minded customers into a vehicle at a reasonable monthly cost and more frequently.
Lyons did not divulge his leasing strategy, but his job is difficult.
Dealers, who like leasing, admit that Ford Division loses big money by subventing leases because many of the vehicles have much lower residuals than originally projected at the end of the contract.
And Ford is in a duel with industry leader General Motors, which is pushing competitors to offer lucrative cash and financing deals, even though GM itself offered a new round of lease deals last week.
Other automakers also say they have no plans to substantially increase their leasing programs and will tweak and expand offers as conditions warrant.
So Lyons has to follow the pack. "What we learned was, it depends on what your competitor is doing, in the same size and price class," he said.
As a percentage of total new-vehicle sales, leasing dropped from 37.4 percent in 1999 to about 21 percent at the end of 2002, according to CNW Marketing/Research in Bandon, Ore. The reasons for the decline: fewer and less attractive lease deals and banks getting out of the business.
The lure of leasing
Marketers like leasing because customers come back to the market more often than those who purchase, and they tend to be more loyal. Dealers like leasing because it draws customers who are attracted to the monthly payments.
But incentive leader GM plans to keep its lease penetration below 20 percent of total sales, in favor of hefty cash incentives promoting vehicle purchases.
"Leasing is expensive on both the front and back end," said GM spokeswoman Elaine Redd. She said the company typically subsidizes consumer leases and purchases. But once a vehicle comes off lease, it is again GM's financial responsibility.
She said leasing was 12 percent of GM's sales in 2002, down from 14 percent in 2001 and about 20 percent in the late 1990s.
What dealers want
Russ Milne of Russ Milne Ford in Mount Clemens, Mich., said Ford's change of heart about leasing is welcome news for dealers in the Detroit area and East Coast, where leasing is a substantial part of their retail sales.
But he wonders how Ford is going to do it.
He said two or three years ago leases were almost 50 percent of his retail business, and customers were happy.
He could offer them attractive lease deals such as Ranger pickups for $199 a month for 24 months.
At the same time, Ford was getting soaked because the vehicles were valued way less at lease end than predicted at the time of the lease.
When Ford halted subsidized lease deals about 18 months ago, "it was painful," said Milne, who retails about 3,000 new and 1,000 used vehicles annually. His lease penetration plunged to 25 percent.
Milne said lease customers generally don't buy many F&I products, like extended warranties and paint protectants, because they think they will be out of the vehicle before anything serious can go wrong with it.
Still, he'd like to see Ford get back into leasing in a bigger way because it gives him more options to get his customers into a vehicle.
"I can sympathize with (Ford's) dilemma," Milne said. Without the subsidized leases, "we've been telling them that leasing is harder and
harder to do, but the residuals were insanely high."
CNW President Art Spinella said his research indicates that leasing will increase to about 22 percent or 23 percent this year. And the factories, through their captive finance companies, will control about 65 percent of those leases, up from 60 percent last year.
Here's why: The typical lease customer comes back to the market to purchase a new vehicle every 39 months compared with every 54 months for the nonlease buyer; lease customers are more loyal than nonlease new-car buyers; and leasing offers companies a way of tracking customers.
"From a business standpoint it makes more sense for a car company to put $3,000 in leases to get people in the showroom," Spinella said.
Projecting an increase
Ford Division is taking action. It is offering programs ranging from a $199 lease on the Focus that will continue through most of the year to loyalty bonuses as high as $1,500 for returning lease customers, to allowing customers to opt out of their contracts early to lease a new Ford
"I have my eyes set on 18 (percent market share) as a bogey," this year, Lyons said.
And GM still is playing hard at leasing. On Thursday, Jan. 23, it started its lease pull-forward program aimed at drawing in customers whose
leases expire from April 1 through Sept. 2.
Tommy Brasher, chairman of the Chevrolet national dealer council and owner of Brasher Motor Co. in Weimar, Texas, said the biggest advantage for dealers is that it draws customers into the dealership during a time of year that is traditionally slow, and that the vehicle may have fewer miles on it than if it had run the full term.
"It's a win-win," said Brasher, who retails 500 new and 350 used vehicles annually.
"The customers don't have to make those last payments, and we get more customers."
Staying on track
Other companies also plan to stay on track with their leasing programs.
Peter Moore, general sales manager at BMW of North America LLC, said 40 percent to 50 percent of BMW's retail sales are leases, and the company has no plans to offer customer rebates or 0 percent financing.
He said the company puts subsidized lease deals on select vehicles, depending on what deals its competitors are offering, production schedules and time of year.
Art Garner, a spokesman for American Honda Motor Co. Inc., said about 20 percent of Honda's retail sales are through leases, and the majority are not subvented.
He said Honda is offering the Accord on a 36-month lease at $239 a month and $1,575 due at signing.
He said the Accord lease is not subvented. "It is strictly based on residual values," he added.
Struggling with residuals
GM is in the middle of a plan to increase residuals, said Paul Ballew, GM's executive director of market and industry analysis.
The company has also turbo- charged its certified used-vehicle program and cut the number of vehicles its sells to daily rental fleets. Ballew said those efforts will help GM reduce the number of used vehicles and enhance residuals.
Despite manufacturers' best efforts, used vehicles won't help much.
New-vehicle incentives deflate new-car transaction prices and reduce used-vehicle prices.
In fact, many in the industry expect used-vehicle inventory to remain plentiful and prices depressed.
Raj Sundaram, president of Automotive Lease Guide, a Santa Barbara, Calif., company that predicts residual values for off-lease vehicles, said his organization assumes that incentive spending will increase 10 percent in 2003 over generous 2002 levels.
"For every $1 increase in incentives, on average 57 cents will have a negative impact on residuals," Sundaram said. "That means that 2003 will be a challenging year."
My first car was a 67 Mustang Coupe, 2nd one was a 67 Cougar XR-7, 3rd one was a 66 Mustang Coupe. Why did I get rid of these cars for ? I know why, because I'm stupid, stupid, stupid.
My next Ford.....