Today’s reality is this – vehicles are now extremely expensive and plopping down 35-large ($35,000) for a proper SUV/CUV isn’t going to happen all that often. Figure a monthly payment of some $650 or so for five long years at the average interest rate of just over 7% for a new purchase, provided approximately $3K was dropped upfront. And that’s just the average vehicle purchase price these days! No, not interested. Consider that three out of four times more used vehicles are peddled than new vehicles each year – no wonder why the average buyer is seeking out alternatives.

Leasing

The alternative to the above train wreck is leasing, which is taking over rapidly. Here, the purchaser is paying for the depreciation only. Consider the same situation as above, and the average lease would be just over $400 for 36 months based on an average lease interest rate of 6% and typical residual. Let’s see, get a new vehicle every three years for $400 or so a month, or drive a beater for five years for $650 a month?

Leasing actually got a meaningful foothold in the 1990s, remained stable, and then began growing rapidly in recent years. I have clients telling me that some 60 to 70% of the vehicles they deliver now are leased versus financed or purchased outright! As the expense of homeownership, insurances, schooling, food, imported beer, etc. grows so does the price of vehicles. So, more leasing is on the horizon, especially for those youngsters under 45-years-old, according to recent statistics. I do get a kick out of the “I have to own my vehicle” people. I remind them to miss a couple of payments to see if they actually own their vehicle.

Servicing Leases

The good news here is the back page of the lease, listing the maintenance requirements. It’s the page no one reads, except maybe the solicitor who wrote it – even then I wonder if it was handed to a marginally-paid assistant to develop/copy from somewhere else, as seems to be the practice these days – but I digress.

I hear a lot of whining from assistant service managers (writers) over leases. They claim leasees push back on purchasing maintenance because “they are leasing.” The irony of that statement is that these obligators have actually signed up/committed to performing all of the required and/or recommended maintenance spelled out by the vehicle’s manufacturer during the lease period. Yes, it’s located in that unread section in their signed lease agreement.

Recently, I got a copy of the three lease agreements that my good-sized Chrysler dealer client uses, and I made copies of the maintenance commitments of each to distribute to the service staff. Of course, how can we educate others when we aren’t educated? My review was an eye-opener to everyone, even the unaware sales personnel who inadvertently initiated problems by hinting about the lack of cost of ownership with a lease. Of course, these days it doesn’t take much for the average consumer to re-delegate any sales reference of “low cost” to “no cost.”

Ally SmartLease

Some quotes from this document: “You will maintain and repair the vehicle to keep it in good condition. Replacement sheet metal must be new original equipment manufacturer parts – ask your insurance company to specify original equipment. You will pay for all maintenance, repair, and operating expenses, including gas and oil. You will service the vehicle as the manufacturer recommends. You will follow the  manufacturer’s instructions in any recall. If you don’t do these things, we may do them. You will owe us the cost if we do.” I particularly liked the part about OE parts for sheet metal based on my own experience with aftermarket trash sheet metal.

Some more instructions from Ally:

„“Excess wear includes: (g) a tire (including spare) that is unsafe, is not the size and type the manufacturer recommends, is recapped or a snow tire, or has less than 1/8 inch (4/32nds) of tread left at the shallowest point; (h) a damaged or worn brake which does not meet government safety standards.” The list is comprehensive, and this is just a small sorting of all the listed requirements. Of course, Ally is trying to protect its asset so that it’s actually worth the residual value placed on it at the end of the agreement.

U.S. Bank

Besides wording similar to the above Ally requirements, U.S. Bank added: “to ensure the warranty, if any, remains valid.” They also added “You will keep all maintenance and repair records. You agree to pay for all operating costs including … towing and replacement tires.” Get this too: Vehicles are not to be used for transport, passengers for hire, for livery, towing, snow plowing, or construction, and to not take the vehicle out of state for “more than 30 consecutive days.” Neither Ally nor U.S. Bank allows vehicle modifications without prior approval.

Chrysler Capital

In bold print, Chrysler proclaims: “You promise that neither you nor anyone else will … fail to pay any fine, toll, ticket or penalty associated with the Vehicle. If you fail to pay, you will reimburse us and pay a $25 administration fee per occurrence …” Regarding maintenance, “You must at your expense, maintain the Vehicle in good operating order and appearance and maintain the Vehicle in accordance with all legal requirements (including inspections), the manufacturer’s recommendations and warranty requirements…You agree to keep and maintain all service records on the vehicle during the Lease Term and provide such records to the Lessor at the end of the Lease Term.”

GM Financial

“Before you turn in your vehicle, you may want to make repairs related to excess wear and use, and any outstanding recalls. Once your repairs are completed and before turning in your vehicle, mail or fax all repair receipts to GM Financial so credit can be applied to your account. If you elect not to repair the excess wear and use, any allowable excess wear-and-use charges will be billed to your account and mailed to you within 60 days of turning in your lease.”

GM Financial also provides a list: Make sure all equipment is present, including all keys and key fobs, owner’s manual, third-row seats (if applicable), other accessories included in the lease package, original manufacturer wheels at the time of the lease, and power charging cables for electric vehicles. It seems they want all of their stuff back.

Honda Financial Services

On their website when asked about maintenance and a lease: “Yes. As part of your Honda Leadership Lease agreement, you are responsible for servicing your vehicle in accordance with the manufacturer’s minimum recommendations and as requested by the manufacturer in connection with any recall campaign.”

Bottom Line

Leasing or financing purchase, even when cash is paid, there are requirements related to maintenance performance for all franchises. While keeping the very valuable warranty in full effect is primarily related to the financing and cash purchases, the leasing programs have much more stringent requirements for both performing and documenting that the manufacturer recommendations/requirements have been followed explicitly.

I teach every ASM staff to be honest and factual with leasees. This includes educating them that it’s wise to purchase tires at 25,000 miles for instance, when they are at 4/32nds – in the danger zone. It’s smart to buy now at “our everyday low price” and enjoy the safety and performance until the end of the lease than pay “whatever” to “whomever” at lease end – a no-brainer decision.

I have blown up the maintenance section on leases and posted them on the wall in service drives so that they serve as an easy, quick reference – and reminder. I don’t expect F&I personnel to fuzzy their transaction by being frank about the maintenance and other requirements, but at some point, the facts have to be presented, including providing the required documentation. Maintenance requirements during a typical lease period are very inexpensive today, compared to years ago. If the consumer isn’t educated about these facts, they will likely get a costly surprise you don’t want them to get at the end, while you lost the revenue, as it’s now going elsewhere.

For You

In the vain of requirements discussed here, I have had well over 100 requests for the Advanced Driver Assistance System (ADAS) repair cost worksheet from AAA that I offered previously.

If you missed it and would like a copy, email [email protected] with the subject line “AAA Handout Is for Me.” It’s great for educating customers too – who knows, we all might end up with a Ph.D. in car stuff.