Beyond the positive impact of Federal Income Tax deferral and cash flow enhancement from “pay-as-you-go” sales tax, when the Lease-Here, Pay-Here model is compared with the Buy-Here, Pay-Here model, the benefits of leasing for auto dealers are numerous.
| Benefit | BHPH | LHPH |
| Return on Asset | – Original markup of the car – Interest received on monthly payments – Life of the asset per dealership: One turn |
– Original markup of the car – Rent Factor (interest) received in monthly payments – Life of the asset per dealership: Two to three turns before end of life – Markup and Rent Factor on each additional turn |
| Associated Fees for the Dealer | – None | – Acquisition Fee – Purchase Option Fee – Disposition Fee – Security Deposit – Excess Mileage Fees – Excess Wear & Tear |
| Affordability for the Customer as the Market Price of Vehicles Increases | – Credit challenged customers struggle to meet high monthly payment amounts – Options are buying cheaper cars or extending loan terms – Higher chance of loan defaulting |
– Credit challenged customer has smaller payments than a similar BHPH vehicle – No need to extend term to keep the payment down – Better portfolio performance |
| Inventory Quality | – Dealers forced to sacrifice quality of inventory – Must buy older vehicles with higher mileage – Faster deterioration of lower quality vehicles – Result: Increased service, increased collections, increased repossessions, and reduced profitability |
– Dealer can buy higher quality inventory for same monthly payment to the consumer – Opportunity to recycle inventory two or three times (sometimes more) – Result: Reduced service, reduced collections, reduced repossessions, and increased profitability |
| Competitive Advantage | – Low – Dealers sacrifice quality and profitability to meet customer affordability – Saturated market |
– High – LHPH dealer able to offer customers newer model and lower mileage at the same monthly payment as an older BHPH car – No need to sacrifice quality and profitability |
| Customer Retention | – Standard communication when customer makes payments – At the end of loan, the customer might return to trade the vehicle, or they may pay off the vehicle without communication – Minimal opportunity to retain |
– Communication is increased as customer comes in for both monthly payments and maintenance – When customer ends their lease, they must return to the dealer with the vehicle – An additional opportunity to sell the unit for residual, or lease them another vehicle |
To speak with a LHPH employee more about the differences between LHPH and BHPH, please contact us at (619) 222-9990 x 1010.
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