DETROIT -- Leasing accounts for a majority of Audi’s sales in the U.S., but Audi of America President Scott Keogh says he wouldn’t want the luxury brand to get to a point where captive finance leasing dominates its book of business.
“I think we are about right,” Keogh told Automotive News in January. “If you look at our total consolidated captive penetration -- so by that I mean financing as well as what we’ve done with the leasing business -- I think if you keep that in a high 60s to 70s [percent] combined, I think that’s a smart place to be. It gives you a nice book of business, and that nice book of business gives you a customer to talk to.”
“You can’t be in the luxury business” without a strong leasing program, Keogh said, but leasing can’t be too dominant because of its inherent risk.
“With leasing, I think you need to be in a 50 to 55 percent place,” Keogh said. “I wouldn’t want to see us be in a place where in a combined portfolio, just leasing is up to 70 percent, for example, because I think it’s entirely too volatile.”
In the luxury market, leasing can be an attractive way to manage a portfolio, Keogh said, because the brand can use incentives to manage its own customers and increase loyalty. But that can make it difficult to conquest potential customers from other brands.
“Historically, we’ve had low penetrations, and it’s tough to compete in the marketplace, particularly getting loyalty, because to try and go conquest somebody who says, ‘Well, I’m in a BMW. The BMW guy is going to pull me out eight months early.’ We never even got a shot at that customer because the customer never shopped officially, because they pulled him out of the marketplace with whatever subvention that they did to run their residual,” Keogh said. “That’s what we need to do, and that’s what we are doing.”
He said the other key to Audi’s continuing growth is managing its portfolio on a lineup basis, instead of vehicle-by-vehicle, when it comes to leasing. That practice “allowed us to be very smart about how we manage the business. We may want to put an [increased residual] on one car but lower it on another car to manage the portfolio, and this is a good way to hedge your risk in the marketplace as well.”