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ARTICLE
February 2012 - Feature
Return to Normalcy
THE INDUSTRY SHIFTS ITS GAZE TO LEASING AS THE SEGMENT REALIZES GAINS
AND PROMPTS DEALERS TO UPDATE THEIR PROCESSES.
By Jennifer Washington
Captive finance companies did all they could last
year to revitalize a key metal-moving financial tool,
and recent announcements and comments made
by finance executives indicate that their drive to
get leasing back to normal levels isn’t over. But are
dealership F&I and sales departments ready?
The first indication that leasing has yet to reach its
final destination was Toyota Financial Services’
announcement in January that it will launch a new
wear-and-tear lease product later this quarter.
Short on details, Justin Leach, spokesperson for
TFS, said the hope is that the product will help
Toyota dealers increase their lease penetration.
Other captive finance companies have indicated
that they also are looking to increase lease
penetrations this year. But they also note that
dealer re-education will be key, as not every part
of the country experienced leasing’s resurgence last year.
“In my part of the country, leasing has been out of the dealership for a while, so, to some extent, the
knowledge of how to set up a lease on the sales floor in the Southeast isn’t there,” Craig Hewitt, a TD
Auto Finance executive, said at the magazine’s annual conference last September.
Dealer Re-Education
Robbie Kanoff spent four and a half years selling leasing software for DealerTrack before he joined
Country Hills Motors in Kansas City, Kan. And when he was pounding the pavement for the software
provider, he saw firsthand how many dealers had forgotten how to deliver a lease. Part of the problem,
he says, is many of the industry’s in-dealership lease experts were lost during the downturn. He also
believes dealers avoid the transaction type because leasing doesn’t lend itself to the sale of higher
grossing F&I products.
“Before I got in the car business, people did leasing and [dealer staff] understood it. But those people
aren’t in the car business anymore,” Kanoff says. “And when you’d look at the F&I pay plan, [lease

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deals] don’t necessarily behoove the F&I manager to get proactive because they’re not going to get that
credit-life penetration or the reserve you would get on a two-point spread.”
Executives at Ally Financial, the former captive of General Motors, have taken note. Last year, the
company launched Ally Buyer’s Choice, a finance product that works like a lease by giving vehicle owners
the option to sell their car back to the company after 48 months at a predetermined price. The company
also rolled out a comprehensive lease class to retrain 7,700 dealer partners last year on a product it
believes is the perfect option for economy-weary consumers.
“We took [lease training] to the next level to show [our dealers] how to qualify customers the right way
and show them the right time to bring leasing into the discussion,” says Kathy Ruble, Ally’s director of
alliance sales, performance and development. “The other piece is to give them the ability to manage
their portfolio and really learn how to work that portfolio to their advantage.”
Leasing’s Return
In the third quarter of 2011, leasing accounted for 22.7 percent of new-vehicle financing. Melinda
Zabritski, director of automotive credit for Experian Automotive, says leasing’s rebirth last year was a
clear indication that the auto finance industry is healthy once again, but adds that she doesn’t expect
the transaction type to regain the penetration levels it enjoyed in the ’90s. That decade’s confluence of
overinflated residual values and aggressive marketing drove leasing to a 40 percent share of the new-
vehicle market, which eventually saddled the industry with $10 billion in debt.
“If the end of 2011 is any indicator, we may see some slight growth in leasing [in 2012],” Zabritski says.
“But I don’t expect to see leasing become 25 or 27 percent [of the market]. I would think it would be
right around the upper 22 to 23 percent range.”
Some captives have launched leasing products for the high-risk tiers, and Zabritski says some finance
companies also have expressed interest in used-vehicle leasing. The subsidy costs required to make
subprime leases attractive, however, is one reason why leasing has primarily been directed at prime-
credit customers.
“At Chrysler Financial, we did a lot of subprime leases and it was very bad business for us, “ TD Auto
Finance’s Kelly Mankin said at the magazine’s conference last year. “It requires a whole lot of
understanding of the credit to make it work.”
Finance companies are careful not to relive the ’90s, but insiders say captive sources won’t be afraid to
get aggressive with leasing if it helps them drive market share. They add that the boom some regions of
the country felt last year was more of a return to normalcy after leasing’s retrenchment four years ago

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at the height of the credit crisis.
F&I Taking to Leasing
Dealers who operate in areas where leasing did make a comeback also are warming up to the
transaction type. Heidi Williams, sales manager for Billings, Mont.-based Underriner Honda — part of the
Underriner Motors dealer group owned by 2012 NADA Chairman William Underriner — experienced the
resurgence firsthand. She says leasing currently accounts for 30 percent of the store’s new-car
business, which she attributes to Honda’s high resale values and her employees presenting the option
to every customer.
“Our personal goal is to try to get our business to 50 percent leasing
because it brings the customer back to the market sooner,” she says.
“And lease customers are statistically far more loyal to the brand,
especially Honda.”
Williams admits her store isn’t selling as many service contracts as a
result, but a menu of customized options tailored to lease customers has
allowed the store to maintain a 60 percent product acceptance rate on
lease deals. Talking about products early and often also has helped.
Meanwhile, F&I product providers — particularly noncaptive companies —
have devised new product strategies to help F&I managers sell product
on lease deals. Bundling products such as appearance and windshield
protection and offering shorter terms on those packages was one way
providers responded. Some providers also introduced programs that
allowed dealers to preload product. And by offering complimentary coverage, the hope is that the F&I
office can upsell the product or be able to focus on the higher grossing products.
Ryan Campbell, F&I manager at Indiana’s Toyota of Warsaw and Rice Ford Lincoln, prefers retail
financing to leasing, but he also knows how important leasing is to restocking his two stores with pre-
owned inventory. He also knows that pre-owned vehicles, especially late-model cars with lower mileage,
present an easier path to selling a service contract. That’s why he’s looking forward to what captives
have in store in 2012.
“When I was selling cars, I liked lease deals because it meant that you were going to have a customer
again [at lease end],” Campbell says. “But it’s not my favorite. However, the way the used-car market
has been for the last couple years should illustrate to us why we need to be maintaining healthy lease
portfolios.”