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Why auto dealers have to focus on customer retention

Recapturing those lease customers has become critical

By Peter Clark, Marketing Factbook


New-vehicle leases accounted for 31% of the new retail vehicle market in 2019, while lease transactions this year account for 52% of captive lenders' new retail business - all of which demonstrates how important it is for dealers and lenders to work together to retain lease customers as the market heads into a downturn, according to the J.D. Power '2020 US End of Lease Satisfaction Study'.

The study showed that effective communication and marketing efforts that factor in key decision-making timeframes can play a significant role in improving lease retention rates.

"Retaining lease customers is crucial for dealer and lender profitability as they navigate a constricting market and economic downturn," said Patrick Roosenberg, director of automotive finance intelligence at J.D. Power. "Communication through customer-preferred channels is paramount as dealerships temporarily close and lease customers navigate an unprecedented event, uncertain of their available options to defer payments, extend or terminate their leases.

The company asserts that the market will recover and competition from banks and captive lenders will be fierce for the 1.8 million returning lease customers scheduled to turn in their vehicles in the next five months. Aggressive retail programs, some of which have already launched with 0% financing and deferred payments up to 120 days on extended term loans, will create more obstacles for lease retention.

Some of the key findings of the study included that:

  • First-time lessees are less loyal to leasing than returning lessees
    More than half (53%) of first-time lessees in the mass market segment indicate they leased another vehicle, with 58% of those returning to the same brand. More than two-thirds (68%) of returning lessees say they leased again. For the highest-scoring lender in the mass market segment, 79% first-time lessees leased again with the same brand. Understanding the different lease-end journeys is crucial to recapturing lease customers in both the luxury and mass market segments.
  • Customer satisfaction is key to retention
    The average overall satisfaction score among returning mass market lease customers who leased again with the same brand is 862 (on a 1,000-point scale). By contrast, overall satisfaction among returning mass market lease customers who switched to a different brand is just 778. The trend is even more pronounced in the luxury segment, in which overall satisfaction among brand loyal lessees is 876 and among non-brand loyal lessees is 795.
  • Moments of truth
    Specific timeframes, communication channels and identified actions taken during critical moments in the lease process can set the tone for the entire experience. In the mass market segment, the greatest differentiation of lease satisfaction among those that leased again are ease of inspection process; ease of scheduling vehicle return; ease of turning in vehicle; and ease of lease termination. In the luxury segment, the greatest differentiation of lease satisfaction among those that leased again are ease of lease termination; ease of turning in vehicle; and ease of obtaining details about lease end.
  • Buyers are beginning consideration process sooner
    In 2017, when J.D. Power last conducted the US. End of Lease Study, only 3% of customers began to think about their next vehicle more than months before the end of their lease. In 2020, that percentage has risen to 14%. "Understanding and executing on the next steps drawn out in the study are key to securing retention," Roosenberg said.
  • More customers are researching options
    Lease customers are doing their own research and due diligence by visiting dealership, OEM and provider websites. Lenders and OEMs must quickly move to assure their websites provide the actionable information lease customers are seeking. Lease customers have identified the specific information they're looking for at the end of their lease, providing lenders with valuable feedback as to their websites.

The study identified lease-end practices and timely marketing opportunities that optimize lease retention for the same brand and at the same dealer. The study was based on responses from 2,848 mass market and luxury vehicle lease customers who were within six months of lease end.

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Source: J. D. Power
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