BMW's lease penetration is down dramatically — 30-plus points vs. pre-pandemic levels, the brand's dealer board leader said late last year.
That's a concern for the franchise, and retailers at the NADA Show are keen to hear the brand's strategy to turn it around.
"The No. 1 goal should be to retain our lease customers," BMW National Dealer Forum Chairman David Sloane told Automotive News.
Sloane said the dealer board is urging BMW and BMW Financial Services to prioritize leasing and put the most compelling offers on the market.
"That's how we will ensure that sales cycle every three years, and it's how, hopefully, we can get lease payments down relative to the finance payments," said Sloane, president of Sloane Automotive Group in suburban Philadelphia.
The slump in leasing is an industrywide concern, especially for luxury automakers, which rely on that business to make their pricey metal affordable.
Edmunds' data shows luxury new-vehicle lease penetration plummeted to 26 percent in the fourth quarter of 2022 vs. 53 percent in the same quarter of 2019, pre-COVID.
Surging interest rates have made leasing less appetizing than buying. According to Edmunds, the average annual percentage rate on new financed vehicles climbed to 6.5 percent in the fourth quarter of 2022 vs. 5.7 percent in the third quarter and 4.1 percent in the fourth quarter a year earlier.
Sloane said customers are going into longer-term financing because they are payment buyers.
"If the payment is $800 a month for a 60-month finance and $780 for a lease, people will buy that car," he said. "We are afraid that the sales cycle is changing, and three years from now, we're not going to have these customers signing up for new leases."
Brian Finkelmeyer, senior director of new-vehicle solutions at Cox Automotive, blames the dive in leasing on the lingering microchip shortage that has squeezed vehicle supply.
The resulting sticker price inflation and a pullback in factory incentives have conspired to crater the leasing market. Cox said lease subvention spending across the luxury segment is down about 70 percent from before the pandemic.
Leasing is the most expensive incentive offer because automakers must set up reserves in case of future losses at auction due to depreciation, Finkelmeyer told Automotive News.
He said leasing is a "useful lever" to move metal when dealership lots are full. But automakers can't justify dishing out incentives in a low-day-supply environment in which dealers are preselling vehicle allocations.
But the cost savings today could prove expensive tomorrow.
"When you're losing this many customers every month from your portfolio, you can look at it like an expense, or you can look at it like an investment into the future to keep people in the brand," Sloane said. "It will cost more money to conquer these customers than it will cost today to keep them loyal."
Leasing drives customer loyalty and certified pre-owned vehicles to franchised retailers.
"As well as selling a car every three years, we're getting a good one-owner local trade-in," Sloane said. "Used-car acquisition is a considerable challenge, and having those customers return and bringing us those off-lease cars is critical in keeping more BMWs in the dealer network.
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