Can dealers make a profit from leasing? The answer is a resounding Yes, and in the same ways one would make a profit from selling a car. Dealers will make the profit from the price the customer agrees on at the beginning and end of the lease. Dealers will also profit from the money factor and any add-ons they sell to the customers.
Two main areas where dealers can maximize profit will be with the Capitalized Cost and Residual Value. When dealers lease their vehicles, the customers pay the amount of depreciation over the period of the lease. The depreciation will be determined by the difference between Net Capitalized Cost and Residual Value. The dealer and the customer will negotiate on an agreed upon value. The agreed upon value is also known as the Capitalized cost. The higher the capitalized cost, the more profit the dealer can make. The second main area to maximize profit will be with the residual value. The lower the residual value the higher the profit since the customer pays the difference, the amount of depreciation.
The dealer can also boost profit based on the money factor. The money factor is the breakdown of the APR for the lease payments. The dealer can charge a higher rate while it still looks attractive towards customers. For example, an APR of 20 percent breaks down to a money factor of about .0083. Also by law, the money factor does not need to be disclosed on the lease agreements making it easier for dealers to charge higher rates.
Another way to add towards profit, will be with the add-ons or extras. Selling products such as GAP, service warranties, and bumper to bumper warranties will help increase your profit. Dealers can also set up specific warranty package to sell to leased customers. The dealer can set up a warranty packages to cover paint, dents and normal wear and tear to be more attractive towards the customer. Customers who lease vehicles know at the end of the lease they may need to pay out of pocket for excess wear and tear. By formulating these specific packages towards leases, this will increase the chances of the customer buying the warranty.
Not only will the dealer make a profit, the dealer will also gain some additional benefits. At the end of the lease the dealer will have the chance to sell the vehicle to the customer. If the customer does not purchase the vehicle more than likely they will lease another vehicle making the customer a repeat customer. The dealer will now get back the leased vehicle and will be able to lease it to a new customer or sell it outright to make additional profit.
Deal Pack Pro will handle your Leasing Needs, be it Operating or Capital. Please reach out to 1-800-526-5832 to schedule a demonstration to learn more.