Should an F&I officer or a salesperson explain the risks of a big down payment to a lease customer?
That's the ethical question that Mike Conn, business manager at Dreyer & Reinbold dealership group in Greenwood, Ind., posed to his F&I peers on Facebook in a post expressing concern that one of his customers used his entire trade equity of $9,500 to reduce a lease on a $25,000 car.
At first glance, the question might seem strange. A larger down payment -- technically a capitalized cost reduction payment -- typically results in lower monthly payments over the life of the lease. That hardly seems like a risk for the customer.
But here's the concern Conn expressed: What if the customer totals the car before the lease ends?
While the customer often will not be out any additional cash because the contract typically is protected by GAP, all the money the customer put in the down payment will be gone. Insurance will pay off the lease, not the customer.
Some of Conn's peers wrote that certain financiers put a cap on the amount of capital reduction a customer can put on a lease.
Still others wrote they do explain the risks of a large down payment to customers because doing so creates trust. Wrote one manager: "They know you're looking out for their best interests, and they feel good when they get a check handed back to them. The beauty of having all that cash in hand is that if the resulting payment is too steep for them after you've suggested product, they can always dip a little into that cash to make it a little more palatable."
But in Conn's situation, neither he nor his salesperson told the customer what a "horrible mistake" the customer was making at the time.
Wrote Conn: "I just crossed my fingers and said a little prayer that the customer doesn't total the car."