A year and a half of tight dealership inventories and strong consumer demand have let automakers dramatically curtail what they spend marketing their products, allowing those dollars to instead pad their bottom lines and soothe any financial damage from rising costs. But while the industry doesn’t need a lot of glitzy television ad campaigns or cash-on-the-hood incentives to move vehicles it already has trouble producing, one portion of the traditional automaker marketing spend deserves a boost in resources right now: lease subvention.
There’s an opportunity to win loyalty by helping offset fast-rising interest rates with subvented leases that use cash incentives from the automaker to lower monthly payments.
Leasing rates are down sharply this year — Cox Automotive puts it below 20 percent, from 34 percent in 2019 — as rising interest rates, slashed incentives and higher transaction prices conspire to make the once affordable financing alternative far less so.
Falling lease penetration rates may be of little concern to automakers and dealers when they are selling everything they can make, usually at asking price or more. But its fall from popularity could come back to bite auto manufacturers and retailers before long.
Modern automotive leasing has evolved beyond its traditional role of offering a lower monthly payment on a new car. The financing plan now serves several vital industry purposes: It puts consumers on a schedule that keeps them coming back to the dealership, either for often-included service or for a new lease. It serves as a pressure-relief valve for clearing the market: letting automakers pull forward leases in times of slack demand or extend them when supplies are tight. Leasing also gives dealers an ample wellspring for profitable certified pre-owned vehicles that can offer consumers an attractive way to sample a brand.
It may be tempting for automaker executives to study their current demand and supply situations and conclude that marketing dollars that would have gone to leasing should be spent elsewhere or distributed to shareholders. But ignoring depressed lease penetration rates for more immediate gratification imperils the future financial health of both automakers and dealers.
No one should waste marketing dollars, but supporting leases can pay big returns down the road.