While the automotive industry has encountered numerous disruptions in recent years, the current market is presenting entirely new challenges and opportunities for auto dealers, even as inventory levels begin to normalize.
According to automotiveMastermind data, the number of customers buying out their lease saw a 275% increase from 2019 to 2022.
The long-term financial implications of customer buying habits shifting are huge for dealers. Shrinking lease portfolios will put pressure on dealers to create a sense of urgency with customers to support new vehicle sales and drive customer loyalty.
As soon as a customer buys out their lease, their loyalty is immediately at risk, threatening:
- Sales revenue
- Service revenue
- Pre-owned inventory
Proactively and consistently engaging lease customers is key to preventing buybacks and achieving sustainable dealership success.
In this blog post, we share steps for auto dealers to proactively prevent car lease buybacks in 2023, including:
- Setting clear end-of-term expectations early
- Staying in consistent contact with your customers
- Exploring every option at your dealership
Set clear expectations early
As inventory levels begin to normalize, customers returning to market may be surprised to find prices are still high.
While new vehicle availability and OEM incentives are trickling back, this growth hasn’t been felt equally by all brands. According to NADA data, average interest rates and transaction prices remain high and continued to keep new-vehicle monthly payments elevated in April 2023.
With federal interest rates increasing again in May, average interest rates on new-vehicle finance contracts will continue to rise. As a result, more buyers are likely to be pushed out of the new-vehicle buying market, according to S&P Global Mobility.
“Inventory is improving, which should take pressure off prices and give consumers more flexibility,” said Tom Libby, associate director of loyalty solutions and industry analysis at S&P Global Mobility. “But we will have to wait a few months to see if it’s a trend."
In the meantime, setting clear expectations with customers before their lease expires is key to preventing sticker shock on the lot. This also maintains loyalty as customers are discovering higher equity in their vehicles and are increasingly being advised to buy out their lease.
Look for opportunities to engage lease customers earlier in their journey (in some cases, up to 12 months before their lease expires) with well-timed and useful information personalized to them, including relevant details about their current vehicle.
During these early engagements, your team should prioritize customer satisfaction, gauging any concerns customers may have with their lease and seeking out appropriate solutions. At this stage, begin inquiring about your customer’s future purchasing plans, asking questions such as:
- Do they plan to lease their next vehicle?
- Have there been any changes to their lifestyle that would warrant a change in model?
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Dealership Templates for Customer Communication Amid Inventory Shortages
Rather than shying away from things like price and payment, set the stage for a positive customer experience by discussing current and future availability for possible vehicles that match their needs.
Stay in consistent contact with your customers
Customers aren’t just buying back their leases and driving away; they’re oftentimes leveraging that equity at competing dealerships or brands to trade-in and acquire the new vehicle they want. This defection poses significant immediate and future challenges to customer loyalty rates, which have already hit an eight-year low last summer.
The best defense against competitors’ conquest attempts in today’s hyper-competitive market is consistent customer communication, at every step. Comprehensive data is key to this process, enabling dealers to confidently engage lease customers with relevant and personalized messaging appropriate for their stage in their journey.
● Task your team to utilize insights from your CRM, DMS and sales platform to identify customers preparing to return to market in the next 6-10 months.
○ This helps to engage with relevant and timely messaging that keeps them informed on the current market.
● Retool your approach to focus on the customer experience and to understand their hierarchy of wants and needs.
○ This empowers your team to tailor their approach and proactively address any concerns before a customer’s lease expires.
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It’s important at this stage to once again set clear expectations and explore options like pre-orders or reserved sales, especially as many brands are experiencing delivery delays. Every message should build off the last and help emphasize the critical importance of building out a personalized lease-end plan to meet their unique wants and needs.
Explore every option
As soon as a customer buys out their lease, their loyalty is immediately at risk. This doesn’t just threaten a dealer’s sales figures – it ultimately impacts their ongoing service revenue, pre-owned inventory and more.
As a customer lease expires, your entire dealership’s goal needs to be retaining their business – at whatever cost.
● Identify and prioritize the best opportunities to keep customers engaged at each stage of their owner journey. This includes post-purchasing messaging related to options like maintenance plan upgrades, as well as regular brand updates.
● Work with customers to explore lease extension options to help bridge the gap between contracts if their desired vehicle is not currently available.
● Discuss pre-order or reserved sale options – as well as their estimated delivery dates – or even similar models that are immediately available that meet their needs.
● Ensure the customer processes their lease buyout at your store and not through their captive finance company or another dealership.
● Capitalize on the opportunity for gross – and ensure you leave the customer with an incredibly positive experience that keeps them connected to your store into the future.
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3-Step Guide for Dealership F&I Success Amid Inventory Shortages
While some dealers are putting off engaging their lease customers until their inventory normalizes or OEM return, increased competition and sky-high equity is emphasizing why it’s so important dealers stay in consistent communication with their audience.
Not engaging your customers – especially as they approach the end of their lease – could mean losing them for good. Proactively engaging customers to create a personalized end-of-lease action plan is key to:
- Preventing lease buybacks
- Maintaining future loyalty
- Maximizing dealership success
Interested in learning how Mastermind can help your dealership stay a step ahead? Contact us for a free demo.