In the third quarter last year, industrywide service contract penetration for new-vehicle loans averaged 40.1 percent. For new-vehicle leases it was only 9.7 percent, according to J.D. Power and Associates' Power Information Network.
Penske Automotive Group, with 173 U.S. franchises, is the nation's second-largest retailer based on 2009 new-unit sales. The group has 151 franchises in the United Kingdom and Germany.
Special Correspondent Jim Henry spoke with Roger Penske at the Detroit auto show.
You're so heavily into premium luxury brands that you must be enjoying the comeback in leasing.
If you look at premium luxury, our model is about 55 to 60 percent of all transactions are leasing.
What's driving that -- customer demand, credit availability or both?
Because residuals are going up, with the used values going up so much, and because everybody is getting back into leasing, you're going to see [leasing] be very competitive.
Other than the obvious benefit of higher retail volume, what are the other benefits? You've said before there's some downside, too, like fewer service contracts.
We get the benefit of mining that customer three or four months before the old lease is up.
And you have a better chance of retaining those people?
There's a loyalty factor from the lease customer for the next sale. Especially with the full-circle maintenance programs we're seeing from Toyota, Lexus -- BMW has it, others are adding it. The person who leases a car has all the consumables taken care of, like brake pads and wiper blades. They are accustomed to coming back to the dealership. When they turn the car in, you get much higher loyalty.
Are they just leasing instead of buying, or do you think the availability of leasing will actually draw more people into the market?
I think you're going to see more leases, for two reasons. One, your high-line customer is not interested in tying up their credit in a car. They're more interested in a lease. Second is the fact that residuals are so much better because the used-car values are so much better.