Advance Auto Zone

We all heard the death knoll for leasing a few years ago. Leasing lay flat on its back in the intensive care unit, gasping its last breaths before fading off to become another F&I memory. The pulse grew weaker, and we all knew it wouldn’t be long before Leasing went to that great F&I office in the sky, to reminisce about the good old days with the twins, Rust proofing and Undercoating, and the prematurely demised Balloon Note.

But, wait a minute…did I hear a beep? Is there a pulse still left? Yes, and it appears to be growing stronger as we go. Leasing is back, maybe not as big as it once was, but back from death’s doorstep none the less.

Back in the late 80’s, leasing was the new mystery. Lease calculations required the knowledge of a foreign language, with all the talk of residuals and money factors. As we went on, leasing became the darling of most dealerships (especially before Regulation L and disclosure came into play) and the typical Leasing Manager in every dealership was the highest paid employee who drove the most expensive car and had the flashiest gold Rolex. He was your high profit, low payment guru, who made deals magically appear from nothing. He knew all the lenders and all their programs, and did the business that no one else in the store wanted to do.

Suddenly, every dealership wanted to jump on the leasing bandwagon. Through the late 80’s and the mid 90’s, leasing continued to thrive, with some dealerships doing better than 85% of their retail business in leases. Everyone realized the leasing advantage; you could sell three cars to a customer over a 6 year period as opposed to one. The customer typically got more car than he expected for the payment he was making, and in theory, the dealership could build tomorrow’s used car inventory from the new car leases it made today. Soon, Lease Star, Lease Link, Lease Prophet and how many other leasing software programs hit the market and soon anyone in the dealership could push a button and get a lease quote in seconds. Suddenly, that high paid obnoxious lease manager was no longer such a valuable asset. Leasing companies, overrun with vehicles with absurdly high residual values, lost thousands of dollars per vehicle at lease end when these off-lease vehicles went to auction. Leasing companies like GECAL, Oxford, and Bank of America, all got out of the leasing business when residuals got too high and interest rates went too low! And the leasing gurus, if they were smart, became Special Finance Managers!

So why the recent rebirth of leasing? Well, first and foremost, it address the number question asked in every dealership in America – “What’s my payment?” Manufacturers are using sub-vented leasing programs, which allows a manufacturers offer extraordinarily low rates, inflated residual values, or both in order to create super low attractive payments. The customer can still get more car, for less payment by leasing. Leasing, if done properly, can still lease a customer two to three cars over the 72 month term of a typical retail loan. Manufacturers like leasing because it allows them to control the future value of their vehicles, (If the bulk of leasing goes through the captive finance arm, they determine the residual value on these leases, which can directly effect used car values. High residuals mean higher resale values – just look at American Honda Finance Corp or GMAC which will advance the higher of book or auction price for used vehicles purchased by the dealership at off lease sales.

What’s in it for the F&I manager? Not much in reality. Manufacturer warranties typically cover the vehicle for the term of the lease, so extended warranties are not an option. Most leases already include GAP coverage, so that’s two down. What’s left is any rate markup that is available and excess wear and tear coverage. If your customer is in on a nationally advertised payment, it’s tough to mark up the rate to earn any profit. And while excess wear and tear coverage would seem top be a natural, many lenders are reluctant to advance for it. As such, the only way to include it in many leases is in the price of the vehicle. The opportunity for F&I backend is limited at best, and leaves little incentive for the F&I manager to really get behind leasing.

So, where is Leasing heading for? In order to survive, leasing has to be used selectively. Be careful who you offer a lease to. The customer that drives too many miles will be in for a rude awakening at lease end when the mileage penalties hit. The marginal credit customer, who may get approved on a second tier sub-vented lease, may have a hard time paying for the 100/300 liability insurance most leases require, since many insurance companied now use credit scores to determine premiums and rates for car insurance. Early termination liabilities must be fully disclosed and customers must understand their obligations under the lease. And dealerships must realize that a customer who makes his decision strictly on the monthly payment may have a problem next time around when this vehicle is no longer available at this low monthly payment. Another SSI score bites the dust!

And what do we do with the customer who comes in that low advertised monthly payment ands doesn’t qualify for the program? If we already know that approximately 50% of the clientele surrounding a dealership fall into the sub-prime category, how do we address this issue? Be tactful, and respectful, while explaining that leasing a vehicle typically requires better credit than traditional financing.(If you are not certain of your dealership’s demographics, email me and I will get you an Income & Market Analysis).

Be ready for customers who may currently be leasing their vehicles, but things have changed for them in the last few years. Economic conditions throughout the country, have had a dramatic effect on credit scores in the last few years. Good people have gotten hit with hard times, and while they may appear to qualify on the surface, many come in looking for a low lease payment to fit their “new limited budget”. This is why it is imperative that you are asking the appropriate questions when qualifying your customers on the lot. (If you would like a complimentary copy of a Lot Traffic Training just email me).

Leasing is not for everyone. If you attempt to make your store a leasing only destination, like branding yourself a “special finance” dealership, you effectively eliminate a segment of the marketplace that perceives you as a place they DON’T want to do business with. Leasing, like special finance, must be worked properly to be effective. Make sure you have it available for any one who asks, but make sure you’re leasing for your customer’s benefit, not yours! Remember what put leasing on the critical list is still lurking, and best practices need to be reviewed on a regular basis. Have you given your leasing department its annual check-up?

Geoff Cohen is a seasoned auto professional, with over 30 years experience. He has done it all, from sales rep to F&I Manager, New Car Manager, Used Vehicle Manager, up to GSM and GM. He has also worked as an area sales manager for a major sub-prime lender as well as run his own BHPH and Auto Leasing/Brokerage company.. He is the National Accounts Manager for AutoLending Network and is a contributing author to Subprimeconsulting.com Subprimeconsulting.com, a blog about Special Finance solutions for auto dealers as well as F&I Magazine and World of Special Finance Magazine

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A legend of a sports car. The Mazda RX 7 had its humble beginnings going back to the year 1978. This vehicle may be that popular for most people around the world. This is certainly because the Mazda RX 7 has been known for various names around the world. In fact, the very same vehicle is also known as the Mazda Savanna and also as the Efini RX 7. The name Mazda Savanna was actually used in Japan. Certainly, the Mazda RX 7 has become a legend and a myth in itself because of the power, performance, and delivery that it is capable of. Proof of that is its being included in the Car and Driver magazine’s Ten Best list for a total of five times in its lifetime.

Behind the design, styling, and specified features and details, the Mazda RX 7 actually was first thought and designed as an affordable vehicle that would be able to compete with the biggest names in the affordable sports car segment. It has been destined to compete with the Datsun / Nissan 280Z. Inspiration for styling and design of the Mazda RX 7 came from the Lotus Elan 2 2. Upon production, the Mazda RX 7 came featuring and holding a unique twin rotor Wankel rotary engine. It also was a proud owner of a sporty front midship and rear wheel drive layout. This has made this sports car well balanced and very much appropriate for doing great speeds and competing in races.

One could say that the Mazda RX 7 was a direct replacement for the Mazda RX 3. Although this was so, both of these vehicles were known as the Mazda Savanna in Japan. Later on, the Mazda RX 7 then took over and replaced all the other rotary cars from the automobile company with the exception though of the Mazda Cosmo. Many followers of this vehicle point out that this vehicle has certainly been a vehicle that held a true sports coupe design compared to other sports cars like the Triumph TR 6 or other sedans that try to look like sports cars but just fail to do so. This vehicle, the Mazda RX 7, has come a long way since its introduction in the United States and the rest of North America.

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LEADING UP TO THE NEED FOR A HYBRID VEHICLE

For most of the lifetime of automobiles, propulsion has been provided by the gasoline or diesel powered internal combustion type of engine. There have been brief flirtations with steam, electricity, and vehicles that could use a variety of fuels, but most of these have fallen by the wayside as the gasoline engine pushed billions of vehicles down the road.

However, this single-minded dependence on petroleum-based fuels, and lubricants too, has placed the planet on the edge of a new future…a future without petroleum or, at best, with limited petroleum resources. Government, business, and designers have combined efforts to come up with some sort of solution to at least part of the problem of maintaining our present way of life with the fact of decreasing petroleum supplies.

In previous incarnations of the personal vehicle, steam did not prove suitable for simple, daily operations, and electricity was limited by the speed with battery charges were dissipated, the length of time required for recharging, and the need to redesign and create an infrastructure for electric cars.

The recent solution has been the hybrid vehicle. The hybrid car combines gasoline engine technology, already fairly highly advanced, with a battery/electric motor combination, which also uses technology that is well known.

WHAT A HYBRID VEHICLE DOES

The gasoline powered engine can provide higher, sustained speeds for long periods of time and recharge the battery as needed by means of a generator (more on this in a moment). The battery/electric motor can provide the power to begin moving the hybrid vehicle, continue moving it at lower speeds and can power systems such as lights, radio, and air conditioner when the vehicle is at a stop. This simple step of having the vehicle turn the engine off during idle times such as at stop signs, stop lights, drive-thrus, and stop-and-go traffic can result in quite a fuel savings by itself.

The forward movement of the vehicle itself can help store power in the battery by turning the electric generator. One interesting aspect of this is that the electric generator which recharges the battery when turning in one direction is also the electric motor which draws power from the battery to move the car at lower speeds. This, in its most basic form, is done by reversing the spin of the central rotor of the generator/motor. This use of the same device to power the car and recharge the battery also allows for a unique feature - regenerative braking.

REGENERATIVE BRAKING IN A HYBRID VEHICLE

Regenerative braking is very simple in concept and turns a frequent and unavoidable expense into an asset in more than one way. In an ordinary vehicle, brake pads or shoes press against a rotor or drum to slow and stop the vehicle. This generates a lot of heat. Brake pads, shoes, rotors, and drums wear out due to the friction and heat and have to be replaced regularly. This can be expensive.

Stop-and-go city driving, tends to be the place where a large amount of braking occurs, so this is where most of the wear on brake parts occurs as well. With a regenerative braking system, such as that in the Toyota Prius hybrid, most braking will actually be provided by the electric motor itself at slower speeds. As you apply the brake, the electric motor which was propelling the car now reverses itself and becomes a generator recharging the battery as you slow and stop. The reversed motor creates torque which slows the vehicle and brings it to a stop, so the regular brake parts receive a lot less wear and need to be replaced less often.

FUEL ECONOMY AND “PLAYING THE LIGHTS” WITH A HYBRID VEHICLE

Add into the mix that stop-and-go city driving burns a lot of fuel. In a gasoline or diesel powered automobile, it takes much larger amounts of fuel to start a vehicle from a stop than to keep it moving. It requires less fuel to pick your speed back up when you have slowed down than to come to a complete stop and have to start from that point. Some truck drivers (and trucks burn a lot of fuel), have been taught to view events ahead and take their foot off the accelerator if they feel they may have to stop at a light that is red or “stale” green, or if there is congestion ahead which will slow them down anyway. This is called “playing the lights” and can result in significant fuel savings in any vehicle. A hybrid vehicle with regenerative braking is going to be saving wear and tear on brake parts, and taking it a little easier on the “go pedal” will help save even more in fuel costs if the driver is “playing the lights”.

A hybrid vehicle commonly improves fuel economy by using the electric motor to start the vehicle moving and by letting the battery take care of times that the car would normally be idling. A well designed hybrid car also sometimes allows the electric motor to assist the gasoline engine as well, thus adding to the fuel economy of a hybrid vehicle over a standard petroleum fuel car.

NOT ALL HYBRIDS ARE CREATED EQUAL

There are hybrid SUV’s and trucks, but these will not get the fuel economy of a smaller, lighter hybrid vehicle such as the Toyota Prius. Just to give an idea of the range, among hybrid cars, according to the federal government’s Fuel Economy website at fueleconomy.gov/feg/hybrid_sbs.shtml fueleconomy.gov/feg/hybrid_sbs.shtml, the 2006 Honda Accord got an average of 28 MPG, while the Honda Insight got an average of 56 MPG, and the Toyota Prius got an average of 55 MPG. To illustrate how the difference in model can make a difference in fuel economy even among hybrid vehicles, hardly any SUV listed on the government’s website got over 34 MPG combined, and neither of the two hybrid trucks listed on my visit to the website, averaged over 20 MPG combined city and highway.

NOTE: I recently bought a Toyota Prius, and have been averaging almost exactly 55 MPG. I went on a trip, of over 2,000 miles, and 55 MPG was the fuel average for almost the entire trip. However, to emphasize how driving habits affect fuel economy, for over 1700 miles, I usually drove between 60 and 64 miles per hour on the highway, but during the last leg of my trip, I was in a hurry to get home and drove at 70 miles per hour. Driving at that speed cut my fuel economy down to under 50 MPG for that last portion of my trip.

The author is retired from the Army after 21 years of service, has worked as an accountant, optical lab manager, restaurant manager, and instructor. He has been a member of Mensa for several years, and has written and published poetry, essays, and articles on various subjects for the last 40 years. He is keenly interested in the fuels of the future, America’s dependence on foreign oil, the physical limits of stores of petroleum based products, and the futures of his grandchildren. Learn more about

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