Small Cars Big Business
Import lease sales expand.
The efforts of First Lease Inc. of Barrington, Illinois spurred on by several import car markers have resulted in their dealers getting a share of the lease car sales long enjoyed by their domestic counterparts.
James L. Davidow, president of the subsidiary of the First National Bank of Chicago, said his firm represents over 2,000 dealers nationally of which 80-percent are import dealers. "By the end of the year, that (total) number should be about 3,000," he said.
"We combine our expertise," Davindow said of the seven import automakers and their dealers. "Theirs is marketing and ours is financing and administration."
When First Lease went into business in 1973, they worked with direct leasing and purchasing leases indirectly from dealers. "Both were on a 50-50 basis," Davidow explained. "The later is what took off." First Lease had hoped to direct lease about 400 to 500 cars per month, but was only leasing about 100 units a month when the lease purchase program began to grow into what it is today. The direct lease portion is the smallest share of the business and Davidow said those customers are primarily clients of the bank. "It convinced me people won't walk into a bank to lease, they'll go to a dealership."
Similarly, the firm goes to the dealers to buy leases, which include the purchase price of the car plus the dealer's full profit. When the lease expires, the firm then offers to sell the car back to the dealer for resale. Prior to getting involved with the import car market, First Lease had about 240 Chicago-area dealers participating in the program. When First Lease purchases a lease it's on a non-recourse basis with the dealer, and the lease contract can be either open or closed. In addition, the company offers insurance for the vehicle and driver. Davidow said that to the best of his knowledge, First Lease is the only business of its kind to offer such services nationally.
The program began to grow to national status in 1974 when Fiat approached the company and asked that they package a program similar to the Chicago-area one for use by the Italian carmaker's dealers.
Soon afterwards, Saab was the second foreign factory to come to First Lease to participate in the lease purchases, beginning a steady stream of the import business which included Datsun in 1975, Toyota and Suburu in 1976 and Peugeot early this year. Davidow is presently working with Volkswagen, which includes Porsche-Audi, to familiarize those dealers with the program.
"The marketing of the leasing program is done under the manufacturer's name, Davidow described. "It's a partnership." The success of getting dealers involved in the program through the factory has been quite good. Davidow estimated that 65 to 70-percent of their dealers have been signing up with their automakers. First Lease primarily trains corporate personnel, and then trains dealers, at factory-sponsored seminars. They will also train individual dealers willing to make the trip to Barrington.
"The program is most successful when the manufacturer assigns a person full-time to implement the program," Davidow said. Success is also coming First Lease's way, attaining a level in the area of $40 to $50-million of leases, a level they originally planned to achieve in 1975. However, this prediction "was made before the energy crisis hit and things went down." During that period, First Lease was able to recoup only 25-percent of the projection. The company has been contacted by import carmakers, as well as several divisions of domestic factories, about the program.
As for direct customer relations, Davidow remarked, "We hope we never see a customer, because if we do it means he has a problem. We're in the financing end of the business. We let the dealers be the experts at selling and servicing the cars. We want the customer to go back to that dealer."
Davidow said First Lease also has a car rental program along the same lines as the lease purchase program. First Lease buys the car from the dealer and leases it back to him with full daily rental insurance included in the monthly fee. "It allows him to have cars available for his service center," Davidow said, indicating that the car can be rented at a discounted rate for warranty and service customers, rented for daily use or use as a pay-for demonstrator. Once the lease, which is a minimum of five months, is terminated, the dealer buys back the car and has a low mileage used car for sale. "He can cover his expenses in this area and turn a profit," Davidow described, as well as meeting the needs of service cars. The selling, leasing and rental aspects make a dealer "a more complete transportation dealer," Davidow said.
Davidow, a 12-year leasing veteran recruited from Lease Car of America by the First National Bank to head its leasing operation, doesn't see a stampede of banks into the leasing industry. "Many of the banks that were going to get into leasing have already done so."
However, "other banks have gotten into leasing as an offshoot of financing. Many have little expertise in automobiles and leasing. We are a professional leasing company that just happens to be owned by a bank: The bank's name behind us helps," he admitted, but, "we are professionals in this business.
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