Mercedes-Benz Credit Corp. had 40,000 off-lease cars bearing down on it a few years ago. That was more than double its previous annual volume, and nearly every car was a money-loser.
Those cars headed straight for Don Porter, director of remarketing for the Dallas-based Customer Services Division. Most of them were auctioned off, at substantial losses.
But the experience taught Porter and his team the importance of contacting customers well before the end of their leases, to encourage them to buy or lease another new Mercedes, or to buy or lease the same car. Failing that, Mercedes encourages its dealers to buy the cars.
That was four years ago. Since then:
Mercedes dealers learned to tolerate the captive finance company speaking directly to customers. Dealers generally hate that, since they regard their customers as their customers, not the factory's customers.
Customer surveys have given the lender high marks.
Mercedes says it has stopped losing big money on residual values. Mercedes Credit is the gold standard in lease-end customer handling, and parent DaimlerChrysler Financial Services uses Mercedes Credit as its model.
All of this reflects well on Porter, 43, who has been in his present job since 1994. He started out as a Kansas City area representative in 1983. Porter helped come up with the 'credit card test' in 1997. The customer is not charged for excess wear and tear at lease end, for door dings, scratches, or carpet or upholstery stains that are smaller than a credit card.
Here are edited excerpts from Staff Reporter Jim Henry's interview with Porter:
As director of remarketing, does that make you the guy in charge of auctions?
When they hear 'remarketing,' most people think auction (is all we do). But our remarketing group is set up to handle customers before the end of their lease.
We are a real important bridge, from somebody simply returning a car to a situation where that customer becomes a new-car buyer. And then we are taking that used vehicle, and it's an opportunity for us to resell it as well.
Has Mercedes always had this philosophy?
We started preparing ourselves in 1993. In 1992, we had what we called the Win/Win Lease. Those leases all came back in 1995. It was painful ... most all the cars were upside down. (That is, the resale value of the cars at auction was much lower than the predicted residual value. Lenders commonly inflate the residual value in order to reduce monthly payments. The lease customer borrows the difference between the up-front cost and the residual. A higher residual means the customer has to borrow less.) We got 55 percent of those cars back in 1995, and every single one of those was upside down.
What kind of losses are we talking about here? The figure $4,500 sticks in my mind.
That's probably a pretty good guess on the average, but there was quite a range. An S class might be $10,000, or a C or an E class $2,000 or $3,000.
What would that figure be today? Nowadays, Mercedes insists that it has no incentives.
Right now we are not losing anything, really. Our residuals are about right.
Are you doing more leasing or less?
More than 75 percent of our business is leasing. If you don't have remarketing as a core competency, you probably shouldn't be in leasing.
How often do people have to pay for excess miles?
More than 50 percent of the people have excess miles. ... We contact people every one-year anniversary of their lease. Say, if they have a 12,000-mile lease. We call them and ask, 'Where are you (how many miles have you driven) now?' And we tell people they can 'buy' extra miles if they have to, which is something a lot of people don't realize you can do. Again, the object is no surprises.
Did you set out to get into used cars, or did you just wind up here?
I came via your standard finance company path, I guess. I started in collections, then buying paper. This (remarketing) is definitely the most interesting area. Nothing else is close. ... I'd be afraid at a bank. When banks start losing money in remarketing, they fire the remarketing guy, not the guys who set those residuals in the first place.