Leasing: a clear path to higher brand loyalty

New vehicle leasing has grown dramatically in the U.S. since the financial crisis, climbing to almost 22% of all new vehicle transactions in the first two months of this year vs. 15% in the same time period five years ago. The growth has been similar in the luxury space, where leases now account for about 45% of the business, up from 39% in 2010. Leasing's advantages (versus purchase) to the consumer, including a lower down payment and lower monthly payments, among other things, have been aggressively promoted. What hasn't gotten as much visibility are the benefits of leasing to the manufacturer.

Leasing has two key advantages for the manufacturer when compared to either cash or finance (loan) purchases. First, lessees are more loyal to the brand of their vehicle than are cash or finance buyers, and the gap in brand loyalty between these two acquisition categories is growing. As shown below, the gap between make loyalty among lessees and purchasers is now 13.8 percentage points, up almost five points from six years ago. Further, at some luxury marques, including Lincoln, Acura, BMW and Infiniti, the gap between lessee and purchaser loyalty is twenty points or higher (based on make loyalty in the first two months of 2015).

Secondly, lessees return to the market more quickly than purchasers. Lessees replace their vehicles on average between fifteen and twenty months sooner than purchasers, as shown below. Over the long term, this accelerated re-purchase rate can translate into significant volume increases for the dealer and manufacturer.

With all manufacturers doing everything possible to retain every tenth of a point of U.S. market share, they realize that at a minimum they need to hold on to as many of their current owners as possible. A focus on leasing is a proven way to increase owner loyalty, with the bonus of more new vehicle deliveries over the long term.

Tom Libby is manager, loyalty practice and industry analysis, IHS Automotive

Posted 7 May 2015