All About Leases and How to Convert Buyers to Leasing

Living in Michigan, the leasing capitol of the country, I can probably say that I have a good working knowledge about leases. I'm going to share a few things I have learned over the past few years about leases and how to convert people from purchases to leases and WHY you should ever want to do such a thing.

First of all, here are some terms you should know in regards to leasing.

Residual Value: What percentage of the MSRP will the vehicle be worth at the end of the lease? If the MSRP is $10,000 and the residual is 50% then the residual value will be $5000. The customer can choose to purchase the vehicle for this price at the end of the lease (plus tax, of course.)

Rate or Money Factor: Almost like an interest rate--basically it is a lease charge for a company to fund the lease.

Cap Cost Reduction: Basically a rebate on a lease.

Start Up Fees: The minimum money required to lease a vehicle. Usually first payment, doc fee, title fees, taxes on the rebates and security deposit. NOTE: You can "roll" in the start up fees on leases--roll them into the payments but the payments will go up.

Down Payment: "Money Down" over and above the start up fees to lower payments. That's why people can advertise "only $1000 down" and hit people for $1652 when they show up.

Security Deposit: Money required for a new leasing customer--usually refunded at the end and usually the payment rounded up to the nearest $25. For example, $212 payment, the security deposit will be $225.

Mileage: How many miles a year the customer will drive. Usually 12K, 15K.

Mileage Charge: How much they get charged if they go over their miles.

GAP: On some leases, gap is included. If they have active insurance and their is a total loss, the vehicle will be paid off regardless of what is owed on it.

Residualized Item: Some things, like sunroofs can be "residualized" which means they add to the value of the vehicle and a person pretty much only pays depreciation on them. For example, if a bedliner costs $150 and you can residualize $150, it is pretty much free--or close to it.

Pre-Paid Lease: Paying the entire contract amount up front--usually, there is a break on the rate so the ultimate paid amounts will be lower than monthly payments.

Lease Pull Ahead: Sometimes the manufacturers will let a person turn in their lease early and waive a couple of months if they purchase another vehicle. Not as exciting as they used to be--I've seen them waive 10-12 payments before--man, those were the good old days! Now it is only 2.

Disposal Fee: A fee a customer pays if they turn in the vehicle at the end and don't lease/purchase another one. GMAC doesn't charge it but some others do.

Why you should lease cars instead of selling them...

• Lower payment for customers
• Low money down
• Easy to roll in a lot of negative equity
• Have a much higher chance of having a repeat customer since they will turn the vehicle back in to you and be in the market for another car
• No problems such as trade in value when they are back in the market--they turn in the vehicle and get a fresh slate
• Easy to sell aftermarket items and make you more money because you can residualize a lot of stuff

How to Convert Someone to a Lease:

• Easy one first: lower payment as opposed to financing most of the time.
• Gap is included--usually $495 on a finance contract.
• If they say, "I drive too many miles" then here's what you say. Then leasing is your best option. If you are driving 20,000 miles per year and finance for 5 years--what will your vehicle be worth when you pay it off and have 100,000 miles? Probably nothing. If you lease it for 3 years, you will have 60,000 miles on it and believe me, by then you will be ready for something new.
• If they say that they absolutely do not want to lease and they want you to figure a finance payment, write Finance: $443 (or whatever the payment is) and write Lease: $320 on the other side of the paper. When you put it in front of them say, "I told him you didn't want to lease. Don't look at that..." as you point to the lease payment. Of course, the first thing they will do is look at the lease payment and hopefully they will notice that it is a lot cheaper. Then say something like, "Are you sure you don't want to lease? Man--it could save you $123 a month!"
• If they say, "I like to own my vehicle so I'm not going to lease" say something like, Mr. Customer--when you finance a car for 5 years--who really owns it--you or the bank?
• If they say, "I like to keep my cars forever," say this: Mr. Customer--I've heard that a lot over the years. People say they will keep their cars forever and then you know what happens? I see them 3 years later and they want to trade. And you know what happens? They always owe more than their car is worth and they are stuck in it. If they would have leased, they would have had a lower payment and not had to worry about trading. Plus, if you absolutely love the car, you can purchase it at the end of the lease for a fixed price.
• "I don't want to lease because I'm afraid that the car will get damaged and I will have to pay for it." This is an easy one: If you got in an accident--wouldn't you file a claim with your insurance anyways?
• And last but not least: "I want to pay off my car and not have a car payment." Use the old "feel/felt/found" closing technique. A lot of my customers feel the same way. I actually had one the other night that felt the same way but you know what he found out? He found out that he traded every three years anyways and will always have a car payment so he was better off saving over $100 a month leasing. I think leasing will be best for you, don't you?
  

All in all, if you lease someone a car, you have probably a 75% to 90% chance of them buying from you again but if you sell them a car, it is probably 10-20%. As long as you get them enough miles, they will love you for talking them into leasing. Good luck and hope you lease everyone!