Auto leasing is back; don’t wait to react

The auto leasing pendulum see saws up and down every few years, and now it is swinging upwards. This is important for independent repair shops since auto leases oftentimes come with service contracts that reduce the likelihood of the car going to an independent shop for service.

U.S. auto leasing is at the highest levels in at least a decade and pacing the industry’s best year since 2007, according to news reports. Low interest rates is a factor behind the trend.

Meanwhile,, the automotive research firm, reported that through the first half of 2013, used car sales have fallen 3.4 percent, a development that may or may not reflect more vehicle leasing activity.

The market is changing, and as a business owner, you need to react.

The Buffalo News recently reported that Buffalo, N.Y. area shop owners experienced a slowdown in business due to more leasing activity. My guess is this situation exists in other parts of the country.

Prior to the recession, carmakers were trying to lease as many cars as possible. Interest rates were high and companies could get good returns on investments. Hence, they promoted leasing. But that began to change when the Federal Reserve Bank began taking steps to keep interest rates low. Carmakers became less anxious for leases, the terms became less enticing and the leasing activity slowed.

But as interest rates have remained low, consumer confidence has gained strength and the demand for new cars has improved since the start of the recession. Carmakers have once again realized leasing makes it easier to move cars off the lots faster than purchasing.

Where consumers might have been interested in buying a used car in the past, low interest rates on leases make new cars more affordable. The decision to lease a new car is more attractive to many consumers than buying a used car.

Hence, the leasing pendulum is headed upward. This is a market condition that independent repair shop owners cannot afford to ignore. As market conditions change, businesses have to reconsider their strategies. If routine service work has been an important part of your business, it may be time to consider expanding into other areas, such as electrical wiring repairs, imports, hybrids, etc.

Your market strategy should be part of a business plan which you review every year. Your business plan should include a marketing plan. If you’re looking to expand into a new service, you need to make the market aware of it.

The fact that more people are leasing vehicles doesn’t mean you have lost all of these customers. It might mean that some of your customers now have different needs. Not all lessors buy dealer service contracts. For those that do, some service contracts do not cover the full term of the lease. So for the last year(s) of the lease, it can be in an owner’s best interest to take the car to an independent shop.

The task at hand is to understand customer needs, which change constantly.