Leasing's exotic side

Leasing is on the upswing in Canada, even at the top of the market with exotic brand names that often end in "i" and ultra-luxury cars such as Rolls-Royce and Bentley.

Auto dealers who play in this rarefied niche say there's room for growth, but it takes a clear understanding of who the customer is and how to work the numbers.

"Leasing of luxury cars is the lowest-risk business in the industry," said Gad Bitton, president of Montreal-based Holand Automotive Group. "The segment is an untapped segment."

Holand is the largest privately held leasing and financing operation in Canada, Bitton said. It also owns Quebec's only Rolls-Royce dealership and a Lamborghini store in Palm Beach, Fla.

Bitton, whose company has been in business since 1979, estimated that 50 to 60 percent of all exotic and ultra-luxury cars are leased, above the 40 percent average for the whole market.

Paul Mirretta-Barrone, who manages leasing nationally for Pfaff Automotive Partners, is a little more conservative. "We would be happy with a 35 percent penetration from a leasing perspective," he told Automotive News Canada.

He and Bitton agree, though, that leasing volumes in the segment could be higher. It's an option for any high-end-car customer, regardless of wealth.

"There are people that will come in and pay cash," said Morris Lubinich, general sales manager at Pfaff's Vancouver McLaren store. "We certainly present leasing options to them because there's a benefit."

Those opportunities often aren't explored because salespeople, perhaps intimidated by a client's wealth, might not broach the leasing option, Mirretta-Barrone said.

"I'm not insulted by you asking me, and it's not going to jeopardize the deal," he said of the customer. "In fact, if anything, you've got more credibility because you're giving me options and you're trying to discover what my needs are."

Better sales training could prevent dealers from missing leasing opportunities with a prospect for better customer retention than cash or self-financed deals in this segment, Mirretta-Barrone said. Many flip their rides after two years or less for the newest model, Lubinich added.

Repeat business

"Typically, if you've done a good job with that customer, you'll lease them a new car again," he said. "You've got sort of a captive customer that comes back to you."

Calculating residuals is an important part of structuring any lease, but harder in the exotic and ultra-luxury segment where only a relative handful of units of a model change hands in Canada.

Experience is crucial, Mirretta-Barrone said. "That's the benefit to coming to guys like us is we're not looking at any black book or any other basic market data," he said. "That's why I think we have a competitive market advantage over our peers because we get the residuals right."

Bitton says automakers and authorized dealers are too conservative in calculating residuals below the vehicle's true market value and leaving money on the table.

"We've been in this business with them for 37 years," he said. "I did residuals at 10 to 12 percent higher than the prescribed rate and I only made money when the cars came back."

Dealers losing out

Bitton said dealers and automakers rely too much on analysis from consulting firms when the Internet provides all the tools they need to track prices. The key, he said, is to watch auctions of off-lease vehicles and what resellers then market them for.

"The dealers suffer because they don't take a chance on their own inventory," he said. "Their cars are being marketed off lease at $30,000 to $40,000 more than they sell them for at auction. They don't need as much data as they think they need. They need limited data by geographic area."

Dealers who dump off-lease exotic and high-line vehicles at auction are also missing out, Bitton said. Low-mileage limits and careful maintenance mean they're good candidates for re-leasing, something Pfaff executives echo.

"I never wholesale a car," Bitton said. "It's the most profitable segment of our business because we re-lease the vehicle. That means we're retailing it at a retail markup and we're refinancing it at a markup. It's the most unbelievable part of our business."

Bitton has waiting lists for clients ready to take older exotics coming off lease.

"We have Ferraris that have been on lease with us for 12 years," he said. "We just keep leasing them."

This story first appeared in the June 2017 issue of Automotive News Canada.