Toyota's Focus On 24-Month Lease Terms

The 36-month lease has long been the norm in auto leasing circles, but Toyota and Chrysler are beefing up their 24-month lease offerings. According to a report in Automotive News:

     "Toyota is seeing a strong shift into two-year leases this year, a trend that promises quicker customer turnarounds   and fuller used-car inventories down the road. At Toyota Financial Services, leases spanning 27 months or less account for 17 percent of its lease portfolio so far this year. That's nearly five times last year's rate of 4 percent. For Lexus specifically, two-year leases have risen to 36 percent of the division's lease portfolio this year from 24 percent in 2013."

     "In the case of Chrysler, a push to move the outgoing and incoming Dodge Charger sedan led to the creation of 12- and 24-month leases, Lyman said. For the March-May period, the share of short-term leases in Chrysler's overall lease portfolio grew to 17 percent, according to TrueCar data of captive and third-party lease deals, up by a third from the trailing 12-month average."

Two-year leases can be beneficial to both the consumer and the industry. The consumer has even more flexibility in driving a new car more frequently under warranty, and shorter contracts help off-set the longer financing terms also growing to near 72-months in length.

Swapalease.com has been monitoring the trend to shorter lease commitments for several months now. According to data from May listings, car lease drivers looked to change lease vehicles just 15.1 months into their 36-month lease, slightly off the record pace set back in January of 13.9 months. For those in a 24-month lease, they look to escape at an average of 11.4 months into their contract.

Furthermore, according to data from a Swapalease.com study in March, drivers view cars more closely aligned with mobile technology, which appears to be just as permeable to a desire for change as the auto industry. In fact, according to Recon Analytics, a research firm that monitors the worldwide mobile industry, Americans change their phones most frequently compared to every other country. Americans change their cell phones every 21.7 months, and this number is expected to drop with the introduction of new contract-escape-friendly plans offered by the cellular providers.

Key highlights of the Swapalease.com study:

  • Men (59.5%) and women (60.7%) would like to change their vehicles as often as they change their mobile phone
  • In addition to change, Men (42.0%) and women (50.0%) say the biggest reason to get a new vehicle is because it comes with a new warranty
  • BMW and Mercedes-Benz are the two brands men and women would like to change into the most, while Chrysler and Dodge were the least likely targets for change (interesting given Chrysler's news above)
  •  In terms of other change preferences, most women (28.2%) would like to change their job/career while most men (31.4%) would like to change where they live

"There is plenty of evidence to show that the desire for shorter lease contracts will in fact drive shorter lease contracts across most of the manufacturers that embrace leasing as an effective sales tool," said Scot Hall, Executive Vice President of Swapalease.com. "Many consumers across different demographics are looking for more flexibility in their driving preference, and these shorter terms cater to a lifestyle that is different than what we experienced 10-15 years ago."

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Comment by steven chessin on July 2, 2014 at 2:11am

Allan - Why is OEM lease process strategy needed when there are 3rd party management tools that provide it? 

Comment by Jerry Thompson on July 1, 2014 at 3:42pm

Great point Allan.  The stats have been there for years that if a Dealer will put their customers in short term leases, set expectations and create a good consumer experience there is an 80% chance they will lease again and 50% chance they will lease from the same dealer.  This increases the velocity of sales, brings back better used cars to resale, and actually requires less effort than looking for a new customer.  Need I add that the grosses on leases are higher than on cash sales and financed sales?

In order for this to work, there has to be buy in from the top down and Finance Managers and Sales People must be compensated appropriately.  With retention/loyalty marketing platforms like DrivingLoyalty out there, the tools exist to help a dealer make the conversion to a shorter turn on their vehicles resulting in happier customers, more gross and sales people that stick around.

Comment by Allan R Mullins on July 1, 2014 at 2:12pm

Until the OEM's focus upon helping the dealerships install a 'lease renewal process' to work with their lease customers, maximum increase in OEM/Dealer - Retention/Loyalty will never be realized. Without a strategy that begins from the 1st day of the Customer's Ownership Experience, the customer may be focused upon always looking for the 'next hot lease deal!'

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