Selling F&I products is more difficult with leasing. Lease customers are poor candidates to buy the F&I department's two biggest sellers, extended service contracts and Guaranteed Asset Protection.
Lease customers usually are covered by the original manufacturer's warranty for the duration of the lease so they're unlikely to buy an extended service contract; having a car that's never out of warranty is one of the attractions of leasing.
Second, GAP is automatically added to most leases, so most lease customers don't need to buy it, either. If a vehicle is stolen or totaled in an accident, GAP covers the difference between the remaining balance on a loan or lease and the actual value of the vehicle.
Leasing on the rise
Meanwhile, leasing is beginning to pick up again, especially for Ally Financial Inc., the former GMAC. Rising used-car prices and rising residual values for new vehicles have encouraged auto lenders to get back into leasing.
Ally is the preferred lender for Chrysler and GM. Ally originated about $800 million in leases in the U.S. market in the second quarter. That's roughly four times as much as in the fourth quarter of 2009 and up from virtually no leasing in the year-ago quarter.
For the entire U.S. market, leases fell from a recent high of about 22 percent of U.S. retail transactions in the first quarter of 2008 to about 10 percent in the third quarter of 2009, according to the Power Information Network. Through the first five months of 2010, leasing rebounded to just over 18 percent of the market.
GMAC's Fuller acknowledged that leasing makes it hard to sell service contracts or GAP. “There aren't too many F&I products available on leasing in the first place,” he said.
But Fuller said there's a decent level of demand for lease protection, which his company calls SmartLease Protect or SmartLease Select, depending on the policy details. The product is popular among repeat lease customers, especially if they've had to shell out for wear and tear in the past, he said.
Striking a chord
“This is a product that strikes a chord with customers who have been through the lease-return experience,” he said.
Dave Duncan, senior vice president for Safe-Guard Products International, an Atlanta-based vendor that offers lease protection, said retail prices for his company range from $495 to just under $1,000, depending on the model and the length of the lease. He said dealer gross profit is roughly comparable to other F&I products at just under half of the retail price.
Duncan said sales penetration for his company's lease protection averages in the low to mid-30 percent range of lease customers at dealerships that offer Safe-Guard products.
He said that in turn, about 35 to 40 percent of people who buy Safe-Guard lease protection make a claim on it at lease end.
Most lease protection policies top out at a total of $5,000 in coverage per vehicle, with a further requirement that no single item within a claim can be worth more than $1,000.
Other lease protection plans include Ford Motor Credit Co.'s WearCare program and Mercedes-Benz Financial's First Class Lease Protection.
GMAC's Fuller said the figures Duncan cited for dealer gross profit and sales penetration for lease protection were roughly in the ballpark for GMAC Insurance, too. He said his company's sales penetration is “a little better” than Safe-Guard's.