10 BENEFITS OF LHPH
Competitive Advantage – Unlike BHPH, leasing has the ability to offer a customer a newer more reliable car for the same price due to the way a lease is structured. The BHPH industry is saturated with competition often leaving the customer choosing the dealership who can offer them the lowest price. Leasing allows the dealership to provide the customer with a much more attractive offer without sacrificing profit.
Profitability – A Lease-Here, Pay-Here program allows you to improve the return on a single asset by leasing a single vehicle two or three times over the lifetime of the asset. The LHPH program increases profitability through return-on-asset and other profit opportunities such as the many lease associated fees for individual deals.
Affordability – A LHPH program allows you to offer your customers a newer more reliable car for the same, or lower, monthly payment as your BHPH competitor. This can result in lower delinquencies, reduced churn and charge off and improved profitability. As the average price of new and used cars continue to increase as they have in the past, LHPH dealers have the opportunity to take advantage of the affordability aspect of a lease resulting in a stronger portfolio.
Federal Income Tax Deferment – Lease-Here, Pay-Here programs allow you to depreciate your assets over time and report those losses in the form of net operating losses which reduces annual income tax significantly. Both bonus depreciation and straight-line depreciation provide great advantages to switching from BHPH to LHPH.
Sales Tax Advantage – In LHPH deals, sales tax is only collected on the down payment and monthly payment the dealer receives as opposed to BHPH where the dealer pays all of the sales tax upfront. This concept, called “pay-as-you-go,” is available in 31 states and allows dealers to grow with less capital. Refer to our E-book for a current list of “pay-as-you-go” states.
Collateral Control – With a lease, the dealer’s name is on the title as the lessor (owner) allowing them to have more control over the asset, especially if the vehicle needs to be repossessed. This expedites the process of recovering the vehicle faster.
Bankruptcy Remote – In Lease-Here, Pay-Here financing, leases cannot be included in a bankruptcy, the consumer either has the option to reject their lease and give the car back or assume the lease and continue making their payments. Leasing diminishes the possibility of cram downs or other bankruptcy headaches.
Customer Retention – LHPH transactions develop relationships between dealers and their customers by not only bringing in the customer in for regular maintenance but also providing incentives for customers to trade up their vehicle before their lease contract ends. This advantage creates a strong customer control in a way that benefits both the dealer, by retaining the customer as either way they will need to bring back the vehicle, and the customer, given the opportunity to lease a better vehicle with a new contract.
Residual Cash Flow – Once a lease matures, the customer will return the vehicle to the dealership and one of three things will happen. Either the customer returns the vehicle and walks away, returns the vehicle, and would like to lease another car, or will want to buy the car for its residual value. Each circumstance will bring the dealership a stream of cash as the vehicle can either be leased to another customer or be sold.
Flexibility – Leasing programs are extremely adaptable as the auto industry continues to advance through new technology, subscription models, and ride share. The structure of your lease program can be resilient to the ever-changing market we are a part of in a way that BHPH programs simply cannot compete in.