Not Just for Finance Deals

New vehicle auto transactions can be separated into three types of deals: finance, lease and cash.

F&I products have historically been sold with finance deals, more so than cash or lease deals. We’ve been watching the trends however, and we see a shift toward higher penetration levels on both lease and cash deals. We believe this increase can be attributed to a greater focus on the part of F&I professionals, as well as better products on the part of product providers.

While the percentage of cash deals has been fairly constant over recent time, the number of leased vehicles has been growing. Experian Automotive recently released a report noting that leases accounted for 27{137f86425451f0eed4391b215cab1f0aedcc26ced4aeb45d9a5267c3194b8614} of all new vehicle transactions in the third quarter of 2015, the highest on record since they began tracking it in 2006. At the same time, the average monthly payment across all OEMs is on the rise; it is currently $389, up $1 from the same time last year.

Compare that to the average financed prices for both new and used vehicles: $28,936 for new vehicles, up $1,137 from last year; and $18,866 for used vehicles, up $290. It’s no wonder consumers are seeing leasing as an attractive alternative when it comes time to replace their current automobile.

Financed loan terms are rising nearly as rapidly as the payment amounts —44{137f86425451f0eed4391b215cab1f0aedcc26ced4aeb45d9a5267c3194b8614} of car buyers took out loans with terms between 61 and 72 months for new cars, with terms between 73 and 84 months accounting for 25.7{137f86425451f0eed4391b215cab1f0aedcc26ced4aeb45d9a5267c3194b8614} of all new vehicles financed in the third quarter. That is a 17.1{137f86425451f0eed4391b215cab1f0aedcc26ced4aeb45d9a5267c3194b8614} increase in consumers looking for extra-long loan terms from a year ago.

With leasing, the payment amounts will be considerably lower, and the length of the deal will still be closer to 24-48 months, giving consumers who don’t want to get locked into long-term agreements an option that will still fit in their budget. Leasing also allows consumers to end the deal and walk away with no negative equity that will need to be rolled into future loans, complicating the ability to get financed. Often times, it also coincides with the length of the manufacturers’ warranties, meaning the vehicle is covered for major faults for the entire length of time the consumer is in possession of it.

With these numbers and the current climate that favors leasing, RoadVantage believes the trend is going to continue, and dealers who offer F&I products specifically geared toward these consumers will excel. This past year, we introduced a multi-option product bundle designed specifically for the leasing market, and we’ve just enhanced it further with the announcement of a power multi-option bundle this week. This new bundle provides benefits on leased vehicles during the life of the lease, rather than just at the end like typical lease “wear & tear” programs. We understand that while many of the F&I products can apply equally to financed or leased vehicles, having a bundle that is designed specifically for this subset of consumers gives dealers leg up when it comes time to give the product presentation.

The world of F&I is changing, and dealers, agents and providers alike must adapt to what consumers need right now. Leasing is going strong, and we don’t believe dealers or agents should have to see their F&I revenue suffer as a result. With the right mix of products and the right presentations, they don’t have to.