There’s no denying the cost of purchasing a vehicle in recent years has continued to climb.
And yet, despite rising costs, many customers spending habits haven’t quite adapted as quickly as they need to, at least not according to Duane LaFreniere, general manager at Bridges Chevrolet Buick GMC.
The North Battleford dealership has been around for over 40 years, and LaFreniere has been selling cars for a quarter century. When he left La Ronge in 2002 to return to North Battleford after co-owning a business up north, he went right back to work at Bridges, and quickly rose from salesperson, to business manager, to sales manager, and then in 2014, to general manager.
In his eyes, too many customers are set on financing, despite having negative equity, and he is on a mission to show them the benefits of leasing instead.
“I always tell everybody: I think everybody should lease and I truly believe that,” LaFreniere said. “Not that it’s any better for the dealership, there’s really no advantages to the dealership profit wise or anything like that, but to customers.
“Most of my sales people, when they purchase a vehicle, will lease it. When my other staff purchase a vehicle, I try to convince them that the smarter option is leasing. When I wasn’t driving a demo or my wife didn’t have demo, we leased our vehicles…so it only makes sense.”
There are three ways to purchase a car nowadays: paying the entire amount outright, financing it, or leasing it.
Most customers cannot simply write a cheque and buy the car on the spot, which is clearly the best way to buy a vehicle because it avoids interest. But in today’s day and age, it’s not likely to happen.
With financing, monthly payments are based on the whole value of the vehicle plus interest, whereas with leasing, your payments are based on only the portion of the vehicle you expect to use (plus interest), which ranges from 24 to 60 months.
So what’s the problem with financing?
“The people that have financed their vehicle and are coming in to trade them, it would probably be in excess of 90 per cent of those people have negative equity,” LaFreniere said. “In other words, they owe more on their vehicle than what it’s worth. In some cases, it’s thousands upon thousands of dollars. So by having that much negative equity, it makes it very hard to trade to a newer vehicle. It makes their payments go up substantially.
“It’s all because… the banks and the manufacturers are having to stretch out the lending terms a lot further... and most places are doing 96 month terms, which is eight years to finance a vehicle. Probably the average person would keep their vehicle for only three to four years but they’re financing them for eight. So this is causing a huge problem and it’s not sustainable.”
It’s not sustainable because customers are getting increasingly further and further in debt. At some point, they will simply not be able to trade.
But because leases are shorter, it gives them more trading power.
“[With leasing], they don’t have to worry about what the market has done, what their vehicle is worth anymore. They basically have just got to bring it back and pick something else,” he said. “After they’ve made 36 or 48 payments, their contract is paid. They no longer owe any more money on it. They can buy that vehicle out if they want. If they really love that vehicle and they fully intend to keep it longer, they absolutely can buy it out too.”
LaFreniere also knows many customers are weary of leasing because they feel like it’s renting.
What if customers return the car and are charged for wear and tear? What if they go over the mileage restrictions?
“I can assure you, it’s not renting,” LaFreniere said. “If you think leasing is renting, well, purchase a vehicle, borrow money from the bank and miss three payments and find out who owns the vehicle. You’ll quickly find out that if you’re financing a vehicle, you don’t own it. The bank owns it, until you have paid them for it.”
As for the specific concerns about mileage and potentially damaging the car, LaFreniere said they are both moot points.
That’s because the mileage restrictions are flexible. When you sign a lease, you can choose your number, whether it’s more kilometres per year or less.
With wear and tear, it’s simply no different than if you finance.
“You can take out, say, a 30,000 km lease if you plan on driving 30,000 km a year or traditionally you’ve driven 30,000 km a year. You can also set it lower if you want,” he said. “And people worry about [wear and tear] but as I always say, if you purchased that vehicle and financed it, and did the same amount of damage to the vehicle and came back to trade it, it’s going to be worth that much less as well.”
Also, included in all Bridges leases is an optional “excess wear and tear” package, which will cover $3,500 worth of potential damages. The customer would be on the hook for any additional damage costs.
With LaFreniere on a mission to educate about the benefits of leasing, he has made sure that everyone at Bridges is on the same page.
“I talk to my staff daily about leasing and the advantages of leasing,” he said. “I don’t think that’s necessarily the same throughout the rest of the industry or even in this town. I don’t know that anybody is as heavily involved in leasing as what we are. For us, it’s more of a culture. It’s what we believe.”
So next time you feel it’s time to trade in, consider leasing, and get your trading power back.
“For anybody that’s wondering about it, by all means call me, come and sit down with me,” LaFreniere said. “I’m not going to try to make anybody lease or to try to convince anybody to lease, I’m just going to try to educate you and maybe show you probably a better alternative to just getting into a long-term finance contract.”
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