Glenn Lukacs, the executive who conceived of the program, says it will boost new-vehicle sales, help dealerships retain customers and strengthen used-vehicle residual values.
"The pilot will run through the summer and the fourth quarter," Lukacs says. "By the end of the year, we will make it a full-blown program to offer to all dealers."
Currently, automakers and dealers expend time and money to bring returning lessees back into the showroom, Lukacs says. But leases account for only about 20 percent of transactions, he says.
The majority of customers finance a vehicle. And the longer the contract term, the less likely a customer will stay loyal to a dealership, Lukacs says. The answer, he says, is to offer buyers an opportunity to get out of their contract and lease a new vehicle.
"We expend all these human resources and programs and incentives for approximately 20 percent of our business," he says. "I have to ask myself, 'Why wouldn't we do that for the other 80 percent?'
"In a 10-year period with a retail customer, (a dealer) is likely to sell them one, maybe two, vehicles. On a lease, dealers will sell three to five vehicles."
Lukacs, 54, is a former dealership employee.
"I sat in all the chairs in a dealership - sales, finance - and was the general manager when I left," he says.
Lukacs worked for 18 years at Bruce Campbell Dodge in Redford Township, Mich., and at Quality Dodge in Atlanta. He joined Chrysler Financial in 2003 as manager of dealer training.
Holding onto customers
Customer retention is easier with leasing because the vehicle must be returned to the dealership.
"I have dealers running 60, 70 or 80 percent retention on leases," Lukacs says.
Contrast that with finance contracts, he says. For example, 80 to 85 percent of customers with two-year contracts remain loyal to the selling dealer. At three years, the rate is 60 to 65 percent. At four years, 40 to 50 percent. At five years, 15 to 20 percent.
At six years or longer, fewer than 5 percent come back to that dealer to get a car, Lukacs says.
"With long-term financing, we will finance ourselves right out of the business," he says. "You want to retain the customers you have. You sell more cars, and it costs less to keep the customer I have than to advertise to get a new one."
Lukacs says he is not pushing leasing. Instead, he says, the program will make customers more aware of the options available to them.
The pilot program is expected to help Chrysler Financial determine how many months into a finance contract that customers should be contacted.
"Is it more equated to miles or to months?" he says. "Is it 24 months? Thirty-two months?"
Under the program, customers will receive a letter inviting them to the dealership for a market analysis, Lukacs says. That analysis will address: "Here is what the vehicle is worth. Would you consider getting into a new vehicle right now?"
In most cases, the financing customer will be upside-down on the loan, owing more to Chrysler Financial than the vehicle is worth.
Lukacs acknowledges that will be a hurdle for sales personnel. Training is part of the program, he says. The dealership, for example, will suggest to the customer that being upside-down is not possible with a series of leases. The financial hit will come only with the initial transaction that terminates the financing contract.
"It may hurt for a little while," Lukacs says. "But it won't hurt for long. The main message is, 'You have options.'
"Most customers want to get out of their vehicles between 32,000 and 38,000 miles or between 28 and 36 months, regardless of how long their contract term is," he says. Three-year/36,000-mile warranties expire, and maintenance costs rise.
"With $100 to $150 a month on average on an annual basis for upkeep, your $300 payment is probably closer to $400 or $450," Lukacs says.