Table of Contents Training Objectives 2 Why Leasing? Why Now? 3 Understanding Leasing Basics 4 Terminology Differences to Financing Advantages and Disadvantages to Long Term Financing Leasing Benefits Kia Motors Finance 9 Lease Features Lease Process Presenting a Lease Option 11 Calculating a Lease Payment Payment Option Analysis What s Best for the Customer? Lease Customer Characteristics Qualifying Questions Where to find Leasing Customers Presenting a Lease Option: Role Play 15 Observation Sheet Common Customer Objections Leasing and Loyalty 17 Lease Renewal Process Appendix Glossary of Leasing Terms 20 Qualifying Questions to Ask Potential Lease Customers 21 Customer Objections to Leasing 22 Calculating a Car Lease Payment Worksheet 23 Payment Option Analysis Worksheet 24 Notes 25 Information contained in this document was accurate at the time of printing and is for internal use only. - 1 -
Welcome Workshop Objectives The Introduction to Leasing course has been developed to provide information on leasing in general and details of the Kia Motors Finance (KMF) Lease. By the end of this off-site training program, you will have a better understanding of: Why KMF is introducing a leasing option The basics of leasing and benefits for the Customer, Sales Consultant and Dealership The features of the KMF Lease How to present lease and finance options to customers (Payment Option Analysis) How to determine what s best for the customer How to utilize leasing to build long term loyal customer relationships - 2 -
Why Leasing? Why Now? Over the past few years, Kia sales and market share has experienced rapid growth. This growth has recently leveled off. As an effective way to incent vehicle sales, Kia has traditionally focused on longterm/low-rate retail financing. As a result, Kia has one of the highest retail finance penetration rates in the industry; leaving Kia customers exposed to negative equity and extending their ownership cycle. By contrast, our lease penetration rate is lower than competitors and the industry. So we ve had to ask ourselves, Are we missing sales opportunities? We know that leasing is a proven method to increase brand loyalty and customer retention. Leasing represents an opportunity to: Increase sales by attracting our competitors lease customers. Eliminate negative equity. Shorten the customer s ownership cycle, which means more future vehicle sales. Build customer loyalty and retention. What is a Captive Finance Company? What are the benefits of having a Captive Finance Company? Kia Motors Finance KMF is a captive finance company. A captive finance company is closely allied with its manufacturing partner. KMF exists to support Kia Canada and Canadian Kia dealerships. KMF s objectives are to: Increase Kia vehicle sales Support Kia dealership profitability Increase Kia customer loyalty and retention Benefits of having KMF as a Captive Finance Company Automotive is our only business, just like you! Brand dedicated dealership support & service. Branded customer experience. Subvention, special incentives & programs due to close relationship with the manufacturer. Insight into the customer s buying cycle, and timely information sharing. Quick to respond to changing market conditions. Business objectives are aligned with those of the dealer and the manufacturer sell more cars, retain more customers. - 3 -
Understanding Leasing Basics: Terminology Test your knowledge to see how familiar you are with leasing terms. Lease Lessee Lessor Capitalized Cost Capitalized Cost Reduction Net Capitalized Cost Residual Value Early Termination End of Term Mileage Allowance Mileage Charge - 4 -
Understanding Leasing Basics: Terminology What is leasing? Leasing is often compared to renting because the lessee only pays for the time the vehicle is used by them. Payments are based on the difference between the lease-end value and sale price, plus fi nance charges. Taxes are calculated on monthly payments rather than the full cost of the vehicle adding to cost savings in monthly payments. So essentially, leasing is a cost-effective way to have use of a vehicle for a fi xed period of time. - 5 -
Understanding Leasing Basics: Differences to Financing Lease Ownership LOAN Ownership of the vehicle is in the name of lessor during lease term. Pay for use during the lease term. Ownership of the vehicle is in the name of the customer. Lien registered by lender until paid in full. Payment and Taxes Lease payments calculated on the portion of the vehicle s value used during the lease term. Taxes calculated on monthly payment. Entire purchase price of the vehicle is paid for upfront, including taxes. Taxes calculated on purchase price. Done through their dealer at time of acquisition. Mileage options selected at lease inception. Option to purchase additional kms at lease inception. Excess mileage charges may apply. Maximum capital amount calculated for a KMF lease is 125% Generally lower than a loan: taxes can t be factored into lease financing. Regular maintenance of the vehicle needs to be maintained. Protection against total vehicle loss. Included with KMF Lease. Customization Vehicle can be customized at any time. Any brand accessories can be used. Mileage No mileage limits. Higher mileage lowers vehicle s trade-in or resale value. Maximum Capitalized Cost Allowance Maintenance Depends on lender, but generally 140%. Generally higher than a lease: taxes can be factored into loan financing. Greater expense for repairs when maintenance is not maintained. Guaranteed Asset Protection (GAP Insurance) Lease Customers have options: purchase, return the vehicle or lease/finance a new vehicle. In the event of a total vehicle loss, insurance company pays out on the market value of the vehicle. Can be a difference between what is owed and the payout. End of Term Insurance Considerations At the end of the loan the customer owns the vehicle. Can keep or trade-in on next vehicle. Lessees must have a minimum of $1 million in liability insurance Lessor must be listed on the policy Insurance is in the name of the vehicle owner Insurance coverage will be recommended by the owner s insurance company - 6 -
Long term Financing Advantages and Disadvantages Although loan financing has its place, over the past six years terms have increased to facilitate lower payments when leasing ceased to be offered. Over time a trend has developed that favours long term financing options. Are longer finance terms really beneficial? For the Customer: Advantages Disadvantages Control Kilometres Driven Cleaning, General Care Regular Maintenance No Control Economy - Resale New Model Platform/Redesign New Technologies Price of Gas For the Dealership: Warranty Advantages Disadvantages For the Sales Team: Advantages Disadvantages - 7 -
Understanding Leasing Basics: Leasing Benefits Inherent Benefits Compared to loan financing, lease financing has shorter terms, requires customers to take care of their vehicle during the lease term and requires them to return to the dealership at the end of their lease term to decide on lease-end options. Within this process there are inherent benefits for the Customer, Dealership and Sales Consultant. Leasing Benefits for the Customer Leasing Benefits for the Dealership Leasing Benefits for the Sales Team - 8 -
Kia Motors Finance: Lease Features Leases are managed by KMF. A Credit Application similar to the one used for Loan financing will need to be completed. Leases are offered for 36, 48 and 60-month terms (24-month terms may be offered on certain models at certain times). Lease rates are competitive, and set in conjunction with Kia Canada, and they vary just as rates for loans vary. Standard yearly kilometer allowance is 24,000. Additional kilometers can be purchased at lease inception for an additional cost. A Low Kilometer lease (20,000 km/yr.) and an Ultra-Low Kilometer lease (16,000 km/yr.) are available; however, additional kilometers cannot be purchased at lease inception on these specific types of leases. Guaranteed Asset Protection (GAP Insurance) is standard on every KMF lease. In the event of a total vehicle loss, GAP insurance covers the difference between what the insurance company pays and the balance on the lease. KMF leases do not require a Security Deposit. - 9 -
Kia Motors Finance: Lease Process Lease Initiation Credit Application completed, submitted and approved. Lease Agreement Signed Customer signs Lease Agreement, arranges for Insurance. Customer takes possession of new vehicle. Lease-end: Customer Contact Lease-end notification sent to customer by KMF. Dealership contacts customer at regular intervals: prior to lease-end. Customer presented with lease-end options: purchase, return the vehicle, lease or finance a new vehicle. Lease-end: Vehicle Inspection Customer contacted prior to lease-end date to arrange a vehicle inspection. Vehicle Inspection performed and report provided to customer and KMF. Lease-end: Customer Decision Customer decides on lease-end options: 1. Purchase the vehicle 2. Return the vehicle 3. Lease or finance a new vehicle - 10 -
Presenting a Lease Option Calculating a Lease Payment Although it s unlikely that you ll have to manually calculate a lease payment, it s good to know how a lease payment is calculated. Understanding how a lease payment is calculated, you ll be better equipped to explain why there s a difference in a payment amount the customer has calculated and what the dealer has calculated. For instance, customers may not have used the correct interest rate or confused MSRP and the Net Capitalized Cost amount. Terminology Net Capitalized Cost vehicle price after accounting for any capitalized cost reductions Residual Value lease-end value of the car Money Factor finance rate expressed as a very small number Term duration of the lease, expressed in months Formula Depreciation Cost = (Net Capitalized Cost Residual Value) / Term Finance Cost = (Net Capitalized Cost + Residual Value) x Money Factor Monthly Pre-Tax Payment = (Depreciation Cost) + (Finance Cost) Plus sales tax! Example Net Capitalized Cost = $25,000 Interest Rate = 2.90%* Money Factor = 0.00121 Residual Value = $13,000 Term = 36 months *(Convert interest rate to Money Factor by dividing the interest rate by 2400) Depreciation Cost = (Net Capitalized Cost Residual Value) / Term ( - ) / = Finance Cost = (Net Capitalized Cost + Residual Value) x Money Factor ( + ) x = Monthly Pre-Tax Payment = (Depreciation Cost) + (Finance Cost) ( ) + ( ) = Plus sales tax! + Total Payment $ - 11 -
Presenting a Lease Option Payment Option Analysis Example: 60 Month Loan / 60 Month Lease Customer Name Current Monthly Vehicle Payment Vehicle Considered: $ FINANCE LEASE MSRP ( ) Delivery & Destination Other Taxes, Levies & Lease Acquisition Fee* Selling Price Rebate/ Capitalized Cost Reduction Before-Tax Price ( ) Sales Tax (Assume 13%) Amount Financed/ Net Capitalized Cost Term (in Months) N/A Rate N/A Money Factor N/A Annual Kilometers N/A Residual Value (%) N/A Residual Value ($)** Base Monthly Payment After-Tax Monthly Payment (Assume 13%) *Current lease lender charges $350 Lease Acquisition Fee. KMF will not be charging this fee. **(MSRP + Delivery & Destination + Federal Air Excise Tax) (Residual Value %) - 12 -
Presenting a Lease Option Payment Option Analysis Example: 84 Month Loan / 48 Month Lease Customer Name Current Monthly Vehicle Payment Vehicle Considered: $ FINANCE LEASE MSRP ( ) Delivery & Destination Other Taxes, Levies & Lease Acquisition Fee* Selling Price Rebate/ Capitalized Cost Reduction Before-Tax Price ( ) Sales Tax (Assume 13%) Amount Financed/ Net Capitalized Cost Term (in Months) N/A Rate N/A Money Factor N/A Annual Kilometers N/A Residual Value (%) N/A Residual Value ($)** Base Monthly Payment After-Tax Monthly Payment (Assume 13%) *Current lease lender charges $350 Lease Acquisition Fee. KMF will not be charging this fee. **(MSRP + Delivery & Destination + Federal Air Excise Tax) (Residual Value %) - 13 -
Presenting a Lease Option What s best for the Customer? Leasing won t be suitable for everyone so it will be important to know what customers would benefit from lease rather than loan financing. Lease Customer Characteristics What are some characteristics of customers who would benefit from leasing? Qualifying Questions Understanding the characteristics of customers who would benefit from leasing, what qualifying questions could be asked? Where to find Leasing Customers? Finding customers who may be suited to leasing is not unlike finding regular customers. Where might you consider looking for customers who would benefit from leasing? - 14 -
Presenting a Lease Option Payment Option Analysis Role Play Observer Notes Observers should note the Did Wells and Do Betters of the Sales Consultant they re observing during the Presenting a Lease Option Role Play. Sales Consultant: Customer: Observations Did Wells Do Betters - 15 -
Presenting a Lease Option Common Customer Objections to Leasing Customers who you ve qualified for leasing may or may not be comfortable with leasing as a financing option and as a result you re likely to encounter some objections. How would you handle some of the common objections to leasing in the chart below? Objection How to Handle the Objection I want to own the vehicle I m not interested in renting. I drive too many kilometers to consider leasing. I will encounter all types of charges at the end of a lease. If I needed to, I won t be able to get out of a lease. - 16 -
Leasing and Loyalty The goal of creating loyalty with customers is to have them purchase, repurchase, service and become ambassadors that will recommend our products and dealers to others. Building customer loyalty is imperative to the long-term viability and success of a sales career, your dealership and Kia. Customer loyalty can t be manufactured it s earned. It s dependent on the customer s purchase and service experience. Loyalty is built over time through multiple touch points and transactions with your customer. The leasing process provides the opportunity for multiple touch points with customers over the term of the lease. The lease process also provides us with knowledge of the customer that can be leveraged such as: When they re returning Their credit background / history Some of their likes and dislikes Unlike long term financing, where we can only hope the customer will come back, every lease has an expiry so we know that the customer will need to return to the dealership. If the relationship with the customer has been nurtured, there s a good chance they ll buy from you again. For these reasons, leasing is considered synonymous with loyalty. - 17 -
Leasing and Loyalty Lease Renewal Process Leasing has a cycle that is predictable and when followed, can only lead to success. It s based on three simple steps: Reach The first step is to Reach out to qualified customers to offer a lease finance option. Then be sure to stay in touch with them over the term of the lease to develop and nurture a long-term relationship. Review Next, on an on-going basis Review your customers needs. When you commit to staying in touch with your customers, you can detect any changes in driving habits or life events. This will help you to provide options that best suit their needs when they return at the end of their lease term. Resell RESELL REACH REVIEW Finally, when customers do return at the end of their lease term you can help them understand their lease-end options to: purchase the vehicle, return the vehicle or lease or finance a new vehicle Ideally you will want to Resell them into a new lease, which often happens because it s easier to resell to customers you know. The dealership may also be able to capitalize on the quality pre-owned vehicles coming off-lease by putting them into their used vehicle inventory. So essentially you ll have the opportunity to sell your customer twice and the vehicle twice. - 18 -
Appendix Glossary of Leasing Terms 20 Qualifying Questions to Ask Potential Lease Customers 21 Customer Objections to Leasing 22 Calculating a Car Lease Payment Worksheet 23 Payment Option Analysis Worksheet 24 Notes 25-19 -
Glossary of Leasing Terms A.P.R.: Annual Percentage Rate: The true cost of credit expressed as a percentage. Capitalized Cost (Cap Cost): The gross balance or beginning balance of a lease or finance agreement. It can include extended service contracts, dealer administration fees, and other dealer add-ons. Capitalized Cost Reductions: Down payment. Can include cash, trade value, manufacturer programs or promotions. Net Capitalized Cost: This is the price of the vehicle after accounting for any capitalized cost reductions. Depreciation: The difference between the capitalized cost and the residual value; or the amount assessed the lessee for the vehicle s use. Early Termination: Ending a lease before the end-of-term date. End of Term: End of the lease term. Inception / Lease Inception: The beginning of a lease. Lease: An exclusive use contract for a set period of time. Lease Term: The duration of the lease. Lessee: The user of the leased vehicle. Lessor: The owner of the leased vehicle. Mileage Allowance: The maximum number of kilometers a leased vehicle can be driven per year without incurring a penalty. Mileage Charge / Excess km Charge: A charge levied if the lessee exceeds the mileage allowance on a leased vehicle. This penalty typically is calculated per km that is over the mileage allowance. Residual Value: The estimated value of the vehicle at the end of the lease term, which can be expressed as a percentage or a dollar amount. It is also commonly referred to as the buyout. Guaranteed Asset Protection (Gap Insurance): In the event of a leased vehicle being a total write-off or stolen, any shortfall between the payout amount and the settlement amount from the customer s insurance company is covered by KMF. All KMF leases include GAP insurance at no additional cost. Closed-End Lease: A lease agreement under which the lessee will assume no responsibility to the lessor for the market value of a leased vehicle at scheduled lease maturity (if no excess wear or kilometers). The KMF lease is considered a closed end lease. Open-End Lease: A lease agreement under which the lessee has responsibility to the lessor for the difference in value if the vehicle at lease termination is less than the residual value. This lease may be considered high-risk and not consumer friendly. - 20 -
Qualifying Questions to Ask Potential Lease Customers Do you currently own or lease your vehicle? It s advantageous to find out if your customer is leasing or if they ve financed their current vehicle. If they re already leasing, they may be open to continue leasing. How long do you traditionally keep your vehicle? If your customer is anticipating a life change like an addition to the family, lease terms of three or four years may provide the flexibility they ll need to accommodate an expanding family. How far do you drive annually? The number of miles driven annually can impact a monthly lease payment. It s important to find out from customers how far they drive to work, if they take long road trips and if they are the only driver. With a lease, customers are ultimately responsible for any excess mileage charges, above the mileage allotted for the term of the lease, unless they purchase the vehicle at lease-end. KMF offers mileage options to help meet your customer s needs. What typically is the condition of your vehicle? When leasing, a normal amount of wear is covered, however, the customer will be responsible for any excess wear charges. Will you customize your vehicle? Customers can customize their selected vehicle with approved Kia accessories. (Note some accessories may not be included.) Any accessories must be purchased as part of the lease deal and installed at the dealership prior to delivery. Are you concerned about warranty coverage? Lease terms and mileage options typically keep a vehicle under warranty. Excessive mileage or long terms, however, may result in the warranty expiring before lease-end. Do you feel it is important to build vehicle equity? Leasing may offer a lower payment compared to a finance contract over a similar term. When the lease ends, the customer can purchase the vehicle at a predetermined price or return it. Payments may be higher when purchasing, but each payment helps build vehicle equity. In the end, the customer owns the vehicle free and clear. Is vehicle maintenance important to you? When leasing, the customer is responsible for maintaining the vehicle at service levels recommended by the manufacturer. Whether buying or leasing, proper maintenance protects the vehicle and helps ensure it performs at its best. - 21 -
Customer Objections to Leasing Objection I want to own the vehicle I m not interested in renting. How to Handle the Objection With a lease, customers pay only for the portion of the vehicle that is leased, as opposed to the total purchase price of a vehicle, as is the case with loan financing. Depreciation risk is minimized. Lower maintenance costs. The Customer can still purchase the vehicle at lease-end With leasing, ownership of the vehicle is in the name of the Lessor during the lease term. With financing, a lien is registered by the lender until the vehicle is paid for. In both cases, the customer won t own the vehicle for the term of either the lease or loan. I drive too many kilometers to consider leasing. Customers can purchase extra kms at lease inception if they re concerned about going above mileage restrictions. I will encounter all types of charges at the end of a lease. With normal wear on the vehicle, there are no additional charges. Kia Motors Finance will be providing customers with an excess wear guide to clearly explain what is and isn t normal If I needed to, I won t be able to get out of a lease. With leasing, ownership of the vehicle is in the name of the Lessor during the lease term. Some charges will apply for early terminations, dependent on whether the customer wants to terminate their lease with or without purchase. - 22 -
Calculating a Car Lease Payment Worksheet Terminology Net Capitalized Cost vehicle price after accounting for any capitalized cost reductions Residual Value lease-end value of the car Money Factor finance rate expressed as a very small number Term duration of the lease, expressed in months Formula Depreciation Cost = (Net Capitalized Cost Residual Value) / Term Finance Cost = (Net Capitalized Cost + Residual Value) x Money Factor Monthly Pre-Tax Payment = (Depreciation Cost) + (Finance Cost) Plus sales tax! Net Capitalized Cost = $ Interest Rate* = % Money Factor = Residual Value = $ Term = *Convert Interest Rate to Money Factor by dividing the Interest Rate by 2400. Depreciation Cost = (Net Capitalized Cost Residual Value) / Term ( - ) / = Finance Cost = (Net Capitalized Cost + Residual Value) x Money Factor ( + ) x = Monthly Pre-Tax Payment = (Depreciation Cost) + (Finance Cost) ( ) + ( ) = Plus sales tax! + Total Payment $ - 23 -
Payment Option Analysis Worksheet Customer Name Current Monthly Vehicle Payment Vehicle Considered: $ FINANCE LEASE MSRP ( ) Delivery & Destination Other Taxes, Levies & Lease Acquisition Fee* Selling Price Rebate/ Capitalized Cost Reduction Before-Tax Price ( ) Sales Tax Amount Financed/ Net Capitalized Cost Term (in Months) N/A Rate N/A Money Factor N/A Annual Kilometers N/A Residual Value (%) N/A Residual Value ($)** Base Monthly Payment After-Tax Monthly Payment *Current lease lender charges $350 Lease Acquisition Fee. KMF will not be charging this fee. **(MSRP + Delivery & Destination + Federal Air Excise Tax) (Residual Value %) - 24 -
Notes - 25 -
Notes - 26 -