A lease customer used to bring little or no profit to the finance office.
Dealerships primarily sold extended service plans. And with the typical lease at 36 months, leased vehicles were under warranty throughout the contract.
But now leasing is on the rise, climbing to nearly 19 percent of overall vehicle transactions in 2010, up from 13 percent in 2009 during the economic crisis, according to R.L. Polk.
And many dealerships are making bigger profits on sales of protection products such as tire and wheel coverage and dent and ding repair. Some sell an average of one or more products per lease. Why the change?
-- More protection products are available for lessees.
-- Dealers are tailoring their presentation of protection products to lease customers.
-- Manufacturers' finance arms -- which write most of the leases -- are offering incentives to entice lease customers to buy protection products.
"There are more products to offer than there were in the 1990s," says industry veteran Marv Eleazer, the finance director at Langdale Ford Co. in Valdosta, Ga. Eleazer leads an F&I managers' discussion group on Facebook.
"Menu sales presentations have gotten better," he says. "By that fact alone, people are buying more products on leases."
Insurance product sales for finance managers involved in the Facebook discussion group vary widely, from $300 to $1,400 per deal.
Generally, dealers gradually have become less dependent on service contracts for F&I income. CNW Research in Bandon, Ore., reports that service contracts' share of F&I profits has declined steadily to a low of 27.1 percent in 2010, from a high of 44.8 percent in 1990.