Kia's not-so-secret sales sauce: Leasing
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Kia's annual U.S. sales have grown an average of 23 percent over the past three years, more than double the industry rate. Photo credit: BLOOMBERG |
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SCOTTSDALE, Ariz. -- Higher residual values and higher lease penetration are contributing to Kia's U.S. sales increases.
"We specifically have used lease as a growth strategy," said Tom Loveless, executive vice president of sales for Kia Motors America.
Kia's annual U.S. sales have grown an average of 23 percent over the past three years, more than double the industry rate.
But while lease penetration for the South Korean brand has increased from "low single digits" to the "mid-to-high teens," according to Loveless, it's still below an industry average of 24 percent, Experian Automotive data show.
"Your lease penetration is affected by three factors," Loveless said in an interview during a press briefing here. "First is residual values. Second is the segments you compete in, how lease-centric they are. Finally, what's your longer-term strategy?"
Loveless said if you compare 36-month values for Kia's 2013 models with those of 2009 models, the brand's residual values improved to an average of 52 percent of sticker price from just 38 percent. At the same time, the industry average improved to 50 percent from 45 percent.
Loveless cited residual values from ALG, a widely used industry benchmark for predicted residual values.
A higher residual value means the customer has to borrow less, since in leasing the customer finances the difference between the upfront cost and the residual value.
In roughly the same time frame, Loveless said, Kia's lease penetration went from "low single digits -- zero, essentially" to the "mid-to-high teens" today.
Meanwhile, according to Experian Automotive, leasing accounted for 24.4 percent of the industry's retail volume in the third quarter of 2012, the latest figures available.
Loveless said Kia's lease penetration is more or less in line in with the competitive segments in which Kia competes -- such as small cars -- where leasing is relatively low on average compared with high-lease segments such as luxury cars.
Loveless said Kia's low residual values and the lack of competitive leases a few years ago were a competitive disadvantage. "The only way to make up for that is to spend incentive dollars to equalize it," he said.
But now that residuals have improved, the company still doesn't want to spend excessive incentive money to achieve higher lease penetration, he said.
Sure, higher residual values for Kia's new lineup have made it cheaper to subsidize lease incentives, Loveless said, "but it's still expensive."
You can reach Jim Henry at autonews@crain.com.
