By: Kevin Londerholm
When talking to dealership owners, managers, and employees at industry conferences and at our San Diego office, we are frequently asked what the benefits are for running a lease-here pay-here program as opposed to a buy-here pay-here program.
Among the numerous benefits that used car leasing can provide a dealership and its customers, we listed the Top 5 Advantages for Lease-Here Pay-Here below:
- Federal Income Tax Advantage:The NEW TAX LAW provides a huge tax advantage with the ability to utilize 100% bonus depreciation of used vehicle assets in the first year until 2023. The dealer can defer all up-front profit and may not pay much income tax (if at all) for years to come.
- Sales Tax Advantage:Benefit both the customer and the dealer. In pay-as-you-go states, the sales tax is calculated only on the actual monies collected by the dealer (i.e. down payment, first payment, acquisition fee). The dealer doesn’t lose the entire down payment to sales tax and can be cash positive at the inception of the deal.
- Competitive Advantage:Is a direct result of the dealer’s ability to offer the customer a better car for the same payment without losing profit. This allows the dealer to compete with the aggressive subprime lenders and lease much higher ACV vehicles.
- Collateral Control:The dealer has ownership of the leased vehicle (asset) and can recover the vehicle easier and often faster because the dealer is named on the title.
- Residual Cash Flow:Is the most dynamic aspect of leasing. Once the dealer’s lease portfolio matures and the leases have completed their terms, the dealer experiences an astonishing influx of cash either by leasing the paid off vehicle again or by wholesaling the vehicle.
Our current LHPH dealer clients and their customers enjoy these benefits, among many others, due to offering a leasing program as their main product.
We would love to discuss these advantages with dealers interested in offering a lease-here pay-here program via a phone call (619-222-9990) or email.
If your dealership is already offering used car leasing to your customers, we especially want to hear from you!