What’s Really Going On

J. D. Power recently released the results of their study on owner retention. According to the study Mercedes Benz showed a significant increase in owner loyalty from 2008 at 67%, the highest score since J. D. Power has been measuring retention, and finished in the top spot. Honda, Toyota, Subaru, and Lexus complete the top 5. As I read the results of this study I thought of conversations I’ve had recently with Dealers who own multiple franchises including both Imports and Domestics. Some of these Dealers have had Chrysler and/or GM franchises terminated or have been told their franchise agreements will not be renewed.

It seems there are quite a few lessees bringing their GM or Chrysler vehicles back at termination of a lease that was put on the books 36 - 48 months ago through GMAC or Chrysler Credit. The way this is supposed to work is the lessee returns to the Dealer to turn in their previous lease vehicle and drives away in a same brand comparable vehicle, classic owner retention. Because of GMAC’s many issues, including having to service both Chrysler and GM dealers and their new commitment to “realistic” residuals, lessees who might prefer to stay in a GM or Chrysler vehicle are faced with a radical increase in monthly lease payment. This “lease payment shock” situation has not been happening at Dealers of the top 5 Manufacturers on the J. D. Power retention list, as their OEM captive finance arms have continued to provide consistent lease support of their products.

So what is a returning lease customer to do when faced with a multi hundred dollar increase in their monthly lease payment? Some consumers might just leave with a bad taste in their mouth and go to another Manufacturer’s dealership. At a multi franchise Dealer, someone returning a Suburban, Yukon, Escalade, etc. might find happiness in a new Mercedes Benz, BMW, or Audi SUV at a dealership of the same owner. Someone returning a Cadillac STS might be thrilled to lease a new Lincoln MKS or a new Benz E Class. In my years of watching the Dealer leasing business I have often encountered these “lease payment shock” situations with domestics OEMs but rarely with the Japanese and European imports. It’s easy to see where GM and Chrysler’s market penetration is going. Firing executives can’t make up for a lack of competitive and consistent lease support.

Dealers who hold multiple franchises do so to keep from being totally dependent on a single OEM. This is also the type of Dealer that was targeted for termination by GM and Chrysler. They must want their Dealers to be so dependent on them that they become totally vulnerable to whatever their single OEM’s products and programs happen to be at any point in time. It seems they would prefer their Dealers not to have options when it comes to retaining a consumer who is looking for a replacement lease vehicle.

According to their logic, they want their Dealers to spend more on their facility, at a time when consumers more and more regard their computer monitor as the showroom. A savvy Dealer, or any business person, for that matter, will want to reserve as many options for themselves as possible. If GM and Chrysler can’t support their own products, why should they mind if a Dealer who puts the customer in a brand from another OEM? Perhaps GM and Chrysler think consumers are so loyal to their brand they will opt for a much higher lease payment than before, for a new like brand similar vehicle. Or maybe they know they are “behind the eight ball” but want their Dealers to suffer along with them?

At the very least, it becomes apparent that Manufacturers who manage their business in such a way that facilitates repeat business are far more likely to achieve it than those who don’t.