Stop leaving money on the table: the case for leasing

Transcript is auto-generated from the episode recording and lightly formatted. It may contain transcription errors.

Chris Keene (00:00): In this week's episode, we find out what made Chris say this. I don't give a shit what it is.

Chris Keene (00:09): Here we are, folks. We are back. This is Lot Talk powered by Lot Pop. I'm Chris Keene, one of your co-hosts, and I'm joined by the all-famous Mr. John Anderson and the world-renowned Mr. Naldo Leonard. Good afternoon, gentlemen. How the hell are we doing?

Renaldo Leonard (00:26): Man, doing any better, I'd have to sit on my hands to keep from clapping. It's all good.

Chris Keene (00:31): Come on, baby. Just start clapping. Excelente. Excelente. Excelente. Uh Oh, John's people's going bilingual on us. A little breakdown.

Renaldo Leonard (00:40): That's about as bilingual as he's going to get. Cerveza. There you go.

John Anderson (00:45): Uno mas. Por favor.

Chris Keene (00:47): Uno mas. Yeah, exactly. Exactly. Uh Hey, John, we've been on what? Two back-to-back launches of some just really great dealer partners over the last couple days, and my gosh, some of these most recent episodes that we've been having conversations about about merchandising, about um acquisition, you know, about strategy, bucket management. It's a I'm still amazed after my almost 4 years with the company, you're what? Nine, almost 10 years with the company. Naldo, you're sneaking up, three and a half, four years now. Um how dealers are still craving craving all of these industry insights that we're finding across the nation. It's so amazing watching that. I mean, it's you know, Naldo, I know you did some training this morning with one. You know, John, you did some training with one that we just launched prior to. I mean, gentlemen, am I wrong, or are we just really seeing a paradigm shift with some very veteran dealers out there getting back to those basic fundamentals that we started this whole podcast on 18 months ago. John, what's your thought?

John Anderson (01:53): No, I mean it's refreshing. Um you know what it it to your point Chris I it it uh you know you guys joke with me about my age and that's fine, but it it to the to the point that that it it keeps you young it keeps it keeps me young man. I I get I get excited right? I I uh that was a that was a that was a huge group this morning man and before I before I got on that call I was nervous. You know I was getting I I cuz I don't get nervous a lot, but I was nervous cuz I'm like man there's a lot of people on this and I you know you I don't want to I don't want to lose people. I don't want to drown people in data. I want to you know, but man they were excited and engaged and making comments like man this is great. So yeah, I mean it's uh uh I think the reason being is it it you know, to your point it takes them back to the fundamental applications that make a difference in the operation and that's what it's all about, right? We get we get so lost in all the stuff that that comes at us on a daily basis and so um to have somebody kind of recenter you on the fundamentals that make a difference. Yeah, um uh I think that gets people excited which gets us excited.

Chris Keene (03:14): 100%. Absolutely. And Aldo, I know you have had you I was looking at your calendar the other day. I mean you've had you retrain after retrain after retrain or better yet continual education of some different you know managers out there whether be sales managers, GMs, platform directors. Hell, I think I've even seen some owners on your calendar. You know, what has been that sentiment you've been getting lately of what they're craving, what they're looking for?

Renaldo Leonard (03:44): Well, I think it's finally hitting home that uh more than a paradigm shift it's kind of a reset. And you know, cuz we're coming out of COVID, you really didn't have to execute perfectly on anything to get a deal done and make profit. It's so, you know, when those things start to dry up, and I mean, I guess from day one when we were starting this conversation with the podcast, uh it was getting back to the basics because those fundamentals will never let you down. And if you execute on the fundamentals, uh it will continue to add gross profit net profit to the dealership's P&L. And so, uh the proof is in the pudding. And guys are seeing, those who have committed to getting back to the basics are are kind of separating themselves from the rest of the pack. And it's kind of we hit we reached that tipping point, and it is really about to open up uh because the things that we talk about on a daily basis aren't that difficult to execute on. Mhm. But uh there is some complexity in where we are now and making that shift back to focusing on the fundamentals, unfortunately. But a lot of guys are Yeah, the light bulb's going off and and people are really investing, rather than investing in additional systems, they're investing in themselves to become better operators. And so, that's why we're seeing the activity that we're seeing. And you know, fortunately, when when when a dealer gets on the phone with you guys, phew, it's lights out. I mean, they cannot walk away without picking up four or five things that they can just simply execute on that's going to make a difference in how their inventory is performing and also what they're getting from their teams.

Chris Keene (05:39): Million percent, you know, and I I need to share some of that some of that outreach and some of that's basic fundamentals and blocking and tackling and really not having to go out there and go spend gobs of money to make yourselves more relevant back in the market and really meeting the customers where they're at is what we're talking about here. But one of our long-time listeners, I got to give a nice shout-out here to Scott McCoy. You know, digging in in the mailbag here, he sent a note in to us. Number one, thank you Scott for being a long-time follower and listener. We appreciate it and as you quoted here, a big fan. So thank you for that. We appreciate it a ton. But Scott, you threw out there in the mailbag a question to us and you said and I'm going to read this out loud, I listened to and then watched the most recent episode on pictures or photos and CTA. So for viewers and listeners, may not be familiar with that acronym, the call to action buttons. Okay. Watched the most recent episode on pictures of CTA. I was happy to finally hear people talk about those CTAs on the SRP page is a terrible idea. I've thought that for years but continue to get kickback on it. I agree the focus must be on the car and the most and most websites are too busy. Excuse me. My question is in regarding to this episode, what about vAuto's promotion management where you can insert billboards in the photo carousel. I have thought these were also a distraction from the star of the show, which is the car. What What do you guys What are your thoughts on this? Well, here's my thought on it. If we think about the big floppy guy in front of the dealership, if we think about Godzilla and King Kong that we put on top of the buildings and I'm maybe dating myself a little bit back to the 90s and maybe early 2000s, but those were cool and all and at some point in time, you know, yeah, they captured somebody's attention, they made them look at your lot, they made them look at your inventory. You know, it it grabbed attention. But after time, it became a fixture. It be your your your brain just started blocking it out. You didn't even see the gorilla on top of the building anymore. All of that to be said, I still stand on CTAs like the gorilla, like the floppy guy, like Godzilla blowing fire out. After time, they become white noise, and your brain just blocks them out, they're not even a call to action anymore. But when it comes to Cox Automotive's or VAuto's promotional management, those are some things that we at LotPop have actually coached on in that photo carousel. If you're going to put, let's say for instance, it's a certified pre-owned vehicle. And you've got your good key profile photo, that first thumbnail photo, then you got feature advantage benefit, and then you've got your OEM certified information in there, what the inspection is, or what the warranty is, or maybe some financing options because it is certified and it's better than what you can get at a local credit union or bank. What's not the wrong with that? Because it's not all the time. It is mixed in, weaved in, a why buy for me. It can be another value proposition of why your vehicle is set apart from everybody else's. Maybe your vehicle is a little bit more money, but you're validating why it is, and it's not a repetitive inside there. So, when it comes to that promotional management that you could get a VAuto, I'm a fan of it. John, kick it to you real quick.

John Anderson (09:24): The NADA. I would just say that uh you know, Chris um it's come up the last couple uh last few days because of the uh new partners that we have joining us in our launches right. We talked about uh when we were looking at merchandising, right? We alluded to that 85 or what was 81 or 85% of customers that are uh navigating on their phones, right? From that perspective, right? Billboard in that carousel to me is extremely important because as they're scrolling through, right? They can get that information. Otherwise, they've got to look for they've got to dig a little bit deeper, look for the description, or go elsewhere, right? So, it if that if that data is accurate, which I have no reason to believe it's not, and 80 plus percent are looking on their phones, man, I think if I can give them a snapshot uh of that information you were talking about in a photo where they can see it, I think that's uh that's the way to go in my opinion, right? Cuz they as they're scroll as they're thumbing through there, man, um they're going to stop and look at that stuff. So, it's going to it's going to make a difference, right?

Renaldo Leonard (10:41): Oh, no. Yeah. Um I I'm always amazed at how dealers forget about the the number one goal is to differentiate your vehicle from what is in the market that you're competing against. Mhm. And anytime that you can add value to that photo set, which I believe that this does, it it's a win-win. Uh the customer gets the information that they need to help Mhm. You also have another opportunity to differentiate yourself from your competition, and you set that that car as the star up to uh to be seen in a favorable light. Yeah. Rather than just showing a picture of a key. Mhm. Uh you know, those those why buys, you know, uh any work that you may have done on the vehicle to get it front line ready. As someone's swiping swiping through those photos, that's only going to make a more valuable impression on your potential customer and get them to lean in your direction. So, yeah, I wholeheartedly endorse that.

Chris Keene (11:46): Yeah. So, Scott, there you have it, buddy. I mean, there's there's the opinion from three guys that quite frankly, it's more factual information as we always say, work the facts. Those are some factual pieces of information. I hope that helps you out. Thank you again, you know, Scott McCoy from Finley for sending that in and thank you again for being a long time listener and follower of us over here at Lot Talk and Lot Pops. Greatly, greatly appreciate that, my brother.

John Anderson (12:14): Hey, real quick, Scott. Real quick. Chris, sorry about that. Hey, Scott, I know we I know we've talked before, my friend, and just because you're so kind to send that send that question in to us, man, if if if you want to if you want to give us your stuff, we'll we'll load your data in and have a little look see at your operation, get you give you an update on what's happening. No charge. This is This is a a bonus gift for throwing us that question, man. So, if you if you're interested in that, reach out to us, man, we'll get you we'll get you what you need so we can get your data loaded in there and then we can have a little meeting and and kind of update update you guys on where you're at, brother, cuz I appreciate you reaching out.

Chris Keene (12:52): Absolutely. Absolutely. Well, with that being said, listeners and viewers, as I always tell you each and every single week, get your digital notepad ready, get your AI tool going to take your notes for you, get your old traditional pen and paper out, and if you're like John, you still use a legal pad and highlighters and a ruler and a and a pencil. You don't even use an ink pen. He uses a pencil.

John Anderson (13:22): I use a I use a I use a a concrete tablet with a chisel. Dude, don't

Chris Keene (13:30): So, get your notepad out, folks, because let me tell you, acquisition has been a pain point for our industry for quite some time now. Brian Benstock talked about it a few weeks back. Use your customer's data to better serve your customer, which leads me into one of the best ways to build for growth for that acquisition strategy starting today to start filling that lot up 3 years from now. And to do that, leasing is one of the best ways to use your customer data to better serve your customer, but to also fire another bullet at one of those challenges that we face month in, month out, day in, day out, year over year, week over week, leasing. Leasing, leasing, leasing. And to talk about that leasing, I am super, super thrilled. You know, several months back we had one of John's mentors on, Mr. Ed French. I am super stoked and excited to bring this gentleman on stage. He has got over 50 years in the automotive industry. He is now retired, and he is still to this day, arguably, one of the most, absolutely intelligent people when it comes to leasing, when it comes to that retention, that I've ever seen in my life. He knows it, he understands it. With that being said, ladies and gentlemen, get your pen and paper out. John Rinaldo, let's get ready to ask this man some questions and dig into that wealth of knowledge he has. I want to bring up on stage Mr. Jim Holman. Mr. Holman, thank you, sir.

Jim Holman (15:18): Thank you, Chris. Thanks. Thank you all. Thank you. I appreciate it.

Chris Keene (15:24): So, I'm I'm going to kick the party off here at number one thanking you Jim cuz I know though you've retired from our industry, you still got a special place in your heart. You're still dabbling in it here and there and you do great things like this and and take invitations like this to to pour back into the community the over 50 years of knowledge that you have in this. And publicly, I I want to sit here and I want to thank you from the bottom of my heart because the last almost 32 years in this business, you have been one of the heaviest influencers in my career and I thank you for that very much.

Jim Holman (16:00): Chris. No pressure.

Chris Keene (16:05): So, Jim, one of the things that we've been talking about over the last several episodes and really probably the last 18 months and it's something that independently many of our performance managers, performance engineers have conversations with our dealer partners here at LotPop, but then one of the things that we've spread the news about across our industry through LotTalk is leasing. Okay? When we when we think about leasing Jim, if you said you know you you had somebody coming up to you that was not from the automotive industry and they came up to you and said, "Hey, you know Jim, you were in automotive for a long time and I keep seeing these commercials on the television about leasing." And you're talking to John Doe consumer, if you sat there and said to John Doe consumer, "Here's the top three reasons why you should lease a vehicle. What are those?"

Jim Holman (17:00): Well, I thanks for giving me these in advance. So, now you're making me have to think on my feet. I think always first of all most all of us pay for our automobile with after tax dollars. So, payment and term become as they have historically in this business forever, payment and term become paramount in in a purchase decision for a consumer. And it given a extended term, 80, 72, 84 months, however long out you can take something just to keep the payment down uh has to me is a questionable mentality because what leasing will give you is a beginning and an end. If you have a same similar payment but a shorter term because the end is essentially the residual value, which is in more familiar terms of walk away option, it makes good sense to keep a shorter term and a newer vehicle. And one of the op one of the opportunities that leasing gives you, when I say end, a shorter term where you can update your transportation as a consumer and turn that car back in and still have the option to buy. So, if there's an upside, let's say the market goes crazy on the value of this your particular vehicle uh there is there are some fees and and it's a tax consequence, sure, to buy a car for the residual, but there's an enough upside to flip it that that doesn't go away. The the the lessee has that opportunity. But to me, the the better choice in most cases is, irrespective of what the used car market's going to do to that vehicle, you have the option to walk away and update. And to me, uh that's always been uh the the core positive decision for a consumer to make about how they want to pay for their automobile. And and one of the things that was always perplexing to me when I was active in the business was the notion that leasing is some kind of hieroglyphics and and some difficult process. Leasing is nothing more than another way to finance an automobile. But again, it has a beginning and an end for of us that don't want a six or eight-year trade cycle, we'd rather keep it half that, then leasing is at least worth a look. And so that was always kind of how I I pitched it in my own not only in my own in the dealerships that I owned, but it was also the way I pitched it in my head, so it made it an easy sale for me. Uh And and and the last and I'm I'm I'm going to tell you that I'm a proponent of used car leasing, which is not a common place thing. The last dealership, and I know you're familiar with it, Chris, that I had uh all used cars. We put 11,000 leases on the streets in Oklahoma City uh over about a six-year period. And so it it doesn't have to be a new car is is the point I'm making with that statement.

Chris Keene (19:59): Hm. John, I saw you get your tablet out, start chiseling away, and you got a couple questions in there. Tell me about it, brother.

John Anderson (20:08): I was blown away by the 11,000 used car leases, man. That's Wow.

Jim Holman (20:16): I watched him do it. Yeah.

John Anderson (20:19): So Jim, Chris asked you about the benefit to a customer. Um I'm going to ask you if you don't mind uh reviewing some of the benefits to a dealer cuz it look, one of the things that we hear constantly just heard it this morning. Uh so large dealer group I was on with this morning that just partnered with us, and the two things uh that they brought up to me was we want to get better at our aging selling fresher inventory and reducing our aging. And then the second thing was we want to be coached on sourcing inventory. Uh and we hear this constantly sourcing, sourcing, sourcing. Um if you don't mind sharing a little bit from the perspective of the dealer and the advantages by uh, you know, I can't I'm just sitting here thinking while I'm talking. That's why I'm hesitating. I can't imagine the huge advantage you had in the market by leasing 11,000 used cars.

Jim Holman (21:26): Well, I I think it it and that took a lot it that took a time to graduate into become having for me my leasing company. So, I had total control. Uh, it it if you use the captive uh, the General Motors, the Ford, whomever, uh, Toyota, all these manufacturers captives have lease programs and the uh, the shorter the shorter cycle that the turnover of the lease um, is going to give you uh, another chance at that customer. But, customer loyalty is not as high as it used to be. Somebody comes out with something new and improved and they may leave that not because the dealer was a bad dealer not because the relationship was a bad relationship. They just like the new the new offering. So, when I formed my own independent leasing company, uh, it gave me control. They had to turn the car back into me and I had a shot at them. But, that doesn't I would just caution that in if you're using particularly a new car and using the captive, you want to look at what the dealer agreement requires of the dealer. Some require that car to be brought back at the end of the lease to the selling dealer and some alike franchise anywhere. So, there's there's some caveats that I would want to investigate were I doing it again today and make sure that because I would be after the fact of a shorter trade cycle get that customer back in quicker and get a shot at the car he's turning in to put it on my used car lot. I mean, those advantages are are clearly out there. But, just I would just say beware of the fine print of the dealer agreement because there may be some things that that don't support that as well as as, you know, going into the the relationship you think you got it and then you find out later. But don't mean to say something negative, but clearly you have a shot at that customer more often. And and the other thing that's very frustrating I think in getting vehicles financed these days is the amount of negative equity. So that sort of disappears in a lease operation. Uh and if you have that negative equity, the first time in looking at the advance that the cap does allow you to have, sometimes you can swallow a lot of negative equity in that first lease. Yes, it raises the payment, but it doesn't change the residual. So he pays a little bit of a higher payment, but when he gets to that residual, the negative equity has been taken care of in a shorter period of time and the residual gets him out. The next lease is is a pure uh arrangement for that for that for your clientele. I should have that answer what you asked me.

John Anderson (23:50): It did. And and if I could highlight a couple things that you said in there for our viewers and listeners, um one, you were talking about making sure that they read the uh the dealer agreement uh from a loyalty aspect, right? But what you just finished with to me uh overcome right overcomes that. And what I mean by is if if if I'm if I'm putting my customer in a more advantageous position, which you would be whether they have negative negative equity or not, the fact that I can recycle my car, um let's be honest let's be honest. Most people most people are going to be making a payment on a car. Uh especially with the average price of new and used cars nowadays, most people are going to be making the majority. Now there are some that uh can pay cash, but the majority are going to be making a payment on their car. So if I'm going to make a payment and you're telling me that I can drive a new vehicle every 2 3 4 years, and and I can absorb negative equity, my loyalty my loyalty to loyalty to you as a salesperson in a dealership is going to be much higher cuz you put me in a much favorable position. So, I just want to I want to strengthen what Jim said. The advantages coming out of that from a loyalty aspect.

Chris Keene (25:18): Absolutely. Well, I mean just to piggyback on what you just said, John. Not only do you put them in a positive situation, but you get to do it more often. One hundred percent. Cuz I had I I was I was fortunate enough to have somebody sit me down my first week at a dealership and say, "Hey, if you're going to build a business and you want to sell a lot of cars, you have to learn how to sell a lease." And so, Jim, my question to you, I mean, it you cannot be the only person under the roof who understands the lease and the benefits that it provides for both the dealer and the salesperson. How did you go about building a culture in your dealership that was driven by offering everybody the lease? I'm assuming that everybody that came in saw those lease numbers. Um but how did you build a culture with your team that they were constantly going to funnel customers in that direction understanding the benefits that were at hand? Jim, before you answer that though, okay, it's it's noteworthy that viewers and listeners, when he answers this, I want you to answer this in multiple ways. Number one, from a privately held single point dealership, i.e. I'm thinking of Gilliland, the the auto group that you coached me in, but also from a massive in a publicly held situation, did that vary? This the question. I don't think so. It how to Ronaldo's point how did you the things that you did to foster that and to promote that across the group?

Jim Holman (27:00): Well, I think as I think back on it it we just made it a talking point all the time. We just wove it into our fabric philosophy fabric if you will that leasing is as I said a minute ago we really capitalized on the fact that leasing is another way to finance an automobile. Now as a dealer you got to figure out how you want to how you want to compensate your your F&I people because you don't want to competition of of that to be taken place with their paycheck that that that's an obvious thing to say but I just mention it because it's something that could get you in trouble as a dealer if you haven't addressed it. But we just made it available free to just like another uh another entree in our smartest board. But uh we liked it because it allowed our grosses were higher typically. Uh but but there is some loss of of of F&I income unless you structure it right. That's individualized as you know, but uh uh basically we just talked the talk Chris. I mean we made it uh part of our philosophy that leasing is is right there. We want to use it anytime that it makes sense to help sell a car and and get it financed and over the curb.

Chris Keene (28:20): Yeah. Wow. And cuz every time that I presented one I always got the number one objection. I don't want to lease. I want to own. Right. And my favorite response was okay, you miss that, you know, you finance a vehicle for 60 months and you miss that 58 payment, who owns the vehicle? The the bank, right? So and the flexibility, the options that you have in a shorter period of time.

Jim Holman (28:47): The One of the things that when I was selling leasing uh that I did is I looked at uh I looked at an amortization chart of a say a an extended term loan on say a $30,000 loan, pick a number. Something that's more commonly or you could use 10 grand and then multiply it by whatever. If they're 50,000, multiply it by five. But where are you going to be at the end of four years on that chart? If you finance it, here's your payment at this interest rate, where are you going to be? And let's say it's equal to the residual for lack of of any other way to compare it. The residual's guaranteed by the lessor and you as the consumer may not own it, but you don't own it at the same period of time in an 84-month loan, either. But let's say they're the same and the market dropped. So if the if you want out, Mr. Customer, at that period of time, say it's 50% of the loan life and the the value is $5,000 uh higher than the market, that 5,000's on you. So if you've been making 48-month payments, you essentially you've forgotten to pay $100 a month to get you whole even at the at midpoint. Whereas in a in a lease, you just hand the keys back and go pick out your new car and and start all over with new tires, new batteries, new warranty, etc., etc., etc. So that's that was kind of how I did that it because I I didn't want to get into a tug-of-war discussion about who owns the vehicle because we all know if you finance it, the finance company owns the vehicle till you pay for it essentially. Uh and uh so that seemed to work a lot for me to just well, here's where you would be at halfway point, which is the end point of the lease. And let's say the market goes south, you got an extra you got a right extra amount of money in and uh or if you didn't have gap insurance and you had a loss cuz every captive lease company that I'm aware of puts gap puts gap in there so there's there's protection on that sort of thing for a walk away after the insurance settlement I mean. Does that answer kind of what you were thinking?

Renaldo Leonard (30:56): Oh yeah, absolutely.

John Anderson (30:59): I now and uh Chris, can I I just No, go ahead and go go go go. You Jim, you mentioned something a little bit earlier uh when we were talking before the the show started and uh you mentioned that you did quite a bit of business setting up um Mary Kay cosmetic cosmetics. It was a long time ago. Yeah, uh but they drove a lot of

Chris Keene (31:25): half of these losers know even know who Mary Kay is Waldo. Think about our auto Well, you know, they can Google it.

John Anderson (31:33): but that that was a I mean that's a huge piece of business. Right. And All right. So just for my edification, can you tell the story of how that came about?

Jim Holman (31:44): It's a long story and you you know, I'm I'm an old guy I can tell a story. All right. All right. Let's have it. So when I I grew up uh in in the car I started in the car business when I was 17, sold cars in college cuz it paid better than flipping hamburgers or whatever you do in college and then after that went out to Tucson, Arizona and went to work for Click Tuttle. I grew up with Jim Click. And uh a lot of people know who he who that company is and they were big into leasing and I was I was uh uh I knew how to I was really not anything more than just just a liner at that point in time and uh I didn't even know how to close a deal much less talk about financing and so forth and just got an opportunity to work under a guy that was masterful at leasing. And um so when that ended and the Wall Street Journal said you should live in Dallas, Texas because it's the place to live, I took off and went to Dallas, walked into a Cadillac dealership and asked for a sales job, and they could do this in my day. They could look you right in the eye and say, "You're too young. Our customers wouldn't buy a car from a kid like you." And then about 2 months later, I got a phone call and they said, "You put leasing on your application. You know anything about leasing?" I said, "Yeah, you know, I'm a young guy. I'm going to say yes no matter whether I could back it up or not." But anyway, I uh and they said, "Okay, we want you to come and make a presentation for us." And as I look back on it, this seems preposterous, but anyway, we did. And we go over to a uh uh an office building, nine floors. Ninth floor was the penthouse office, and there was a 4-ft 10 blonde lady that that walked up to the door and said, "Hi, I'm Mary Kay Ash." I didn't know who Mary Kay was. Basically, they wanted to put together a program to award their top sales people with the use of a Cadillac for We leased those cars back in those days for 24 months. I don't know if they had the car for a year or two. I don't remember, but I do know the leases were two two years, and I closed the deal. And I got the job, ultimately ended up being the general manager of that dealership, and and it was a great launch for my career. But that's how it happened.

Chris Keene (34:00): Yeah. So, you were getting probably what, three or four deals a month out of that?

Jim Holman (34:06): It was It was a 300 car deal every year. Three We put three in Cadillac, and we drop shipped all but about five. Only about five came into Dallas, and the rest of them went all over the country, including Puerto Rico and Alaska.

Chris Keene (34:20): Right. Wow. But listeners, think about that. Think about that for a minute. They did 300 a year just to one company. Do the math. Do the math, folks. That's 25 a month to one company.

Jim Holman (34:35): Now, now understand too that part of the part of the motivation back then, you guys can go check this. When and this was the early '70s, mid '70s, prime rate was at that time 21%. And you remember that, right? Yep, oh yeah. So, it was and usually ceiling in those days in Texas was 18. So, every time you financed a car with a our number one lender in those days was was General Motors, GMAC at the time and they were always saying we got 300 basis points loss on every contract that we that we put out. It was it helped Mary Kay because the exorbitancy of of interest rates. Even though we were paying a high rate on on lease money too, it still was was it worked better for them.

Chris Keene (35:22): Absolutely. Gosh. So, so Jim, I'm thinking back. I'm thinking back to when you you and you know, everybody from the group, you introduced leasing to us. There was some some things that stick out to me and I still use them to this day when when coaching you know, dealers across the nation and Canada for that matter. A term that we used frequently and part of it was is because of the and again, this is in the '90s so we weren't too far removed from the '80s and the term lease just scared the shit out of people, right? That's what we I I distinctly remember we would pencil every deal with residual based financing, RBF. You remember that? We did the residual based financing with then we showed the terms, you know, you can do a or the standard retail term of a you know, at that time I think we showed 48 60 and 72 months back then and 72 was like holy cow. I think but as a matter of fact, I think we might have been 66 back then. But we presented a residual based financing, but then one of the major phrases we used and I want you to elaborate on this a little bit. One of the major phrases we used was pay for what you use. We would tell the customer, just pay for what you're going to use. Don't pay for all of it up front, pay for what you use. Talk about that.

Jim Holman (36:55): Well, we used RBF in in our Texas stores because Texas had some idiosyncrasy laws about leasing that weren't friendly. And uh so when when we started that, we had lenders that would give us a guaranteed value on the balloon because every lease is nothing more mathematically than a a balloon finance deal. It it's all the same math. It's just really what determines a lease is who owns the car, the lessor or the consumer and with with a lien on it. But uh we used RBF for that reason, but it was still the same talking points, Chris, to uh uh the because we had that guaranteed residual, the only difference was in the RBF that that the title was in the name of the consumer, but the math was the same and the talking points were the same, which was you had and I said this earlier, you had a beginning and an end, which is meaning you just are paying for what you use. Uh for 4 years you used the car if that's how if you have 48 month lease and you have a guaranteed buyout, that's what the residual really says in the fine print. The value is guaranteed irrespective of the of the used car market. Now, the good news for the lessee is if the market exploded and it's you've got a huge gain on that on that uh value of that vehicle at the end of the of the term, they can buy it. There's usually a a couple of fees added to the residual and it's the tax consequence because you do you have an ownership change, but still if there's an upside, you can flip it and put the money in your pocket if you are the consumer or hand it down in the family if you like the car that well. There all those kinds of things, but you have that option to walk away and somebody else is guaranteeing the value of that vehicle. So, from a consumer's point of view, that's a pretty good win-win. And and you're set up to move into a new new car uh a new vehicle with all the new stuff, tires, warranties, etc. And and and in this day and age this technology is so rapidly changing, you also move up into because we learned back when we were doing a lot of used car leasing, you got to be really careful about something that's out of sync and putting the wrong age bracket lessee in the wrong age bracket vehicle and the technology's not not the latest and these couple of these friends will say, "Why'd you buy that old thing?" And now you now in as ridiculous as this may sound, now you could have potentially as a as a lessor, you could have a collection problem. So, you have to match that up, but whereas if you're leasing new cars and flipping them every four I mean, the lesseing into a new vehicle every three, four years, whatever the interval is, uh that that's even an that just goes away. It's it's not an issue.

Renaldo Leonard (39:46): Right. Yeah. All right. I was in Texas Oh, I'm sorry. Go ahead. Go ahead. I'll go. Yeah, I was just going to say that uh you know, in Texas You mentioned that there were some negative were set up uh against lease. We had a red carpet option, and the phrase that we kind of uh hung our hat on was the guaranteed future value. Mhm. and so that that residual and knowing exactly how to present that right up front really kind of just set the stage for the entire conversation.

Jim Holman (40:21): Yeah, that and that's what I said I used to take that amortization chart and set it up look halfway through a long-term finance and say, "Here it is. What if the market goes south? If it's a lease, you got no worries. If if if it's a purchase and you're half you're at that same say 48-month interval of a long-term, you could have additional negative equity if you will because the market went south. Digging a little deeper in your pocket.

Renaldo Leonard (40:36): Yes, indeed. Oh, man. I love it. Um but a lot of people are still uh hesitant to try to attack it as a as an option in the business model. What would you Yeah.

Jim Holman (40:53): we've all all I mean, over the years I I saw it. People get tangled up with trying to make it more com- complex than it is. It's it to me, I always use the phraseology in my own stores, it is just another way to finance a car. And I said that over and over and over again because I wanted it to get into people's heads. And Yeah, there's a little there there are some uh bullet points that have to be covered that you may not have to do in a conventional finance arrangement. I get that, but they're not that difficult. Typically, if you're side by side unless you get really stretched out, typically the other thing that's helpful in leasing is payment tends to be a little lower. Yeah, a lot of a lot of details in that. I think some of the some of the manufacturers national ads where they're advertising a very unrealistic low payment. Freeze your TV screen and read the that false small print and you need four or five thousand dollars up front plus the tax and the license. That gets to be uh uh a little bit of a an undersell. You can't lease that car for $199 a month. We all know that. Uh but you have a great big number that's a capitalized cost reduction, but just over and over again just that it was a training issue. We We We visited it a lot in terms of uh formalized training as well as informal. When I say informal, I just I used to just melt it into sales meeting discussions. And it was it was a it was kind of a quasi training thing without form You say training immediately they go into a different mindset. So, we'd just train them in spite of that if we could get by with it.

Renaldo Leonard (42:38): Yeah. Yeah. Um and going to, you know, those national advertisements, you know, when you read the fine print, majority of the time they're setting those things up and those leases are going to get somebody in a trick bag because they are using the least amount of mileage band, which is going to inflate that residual value. Um how did you And being successful with leases, you really have to take care of the customer up front so that you don't have, you know, a lot of horror stories that we've seen with people coming out of leases. The The The huge mileage penalties, uh wear and wear and tear, things of that nature.

Jim Holman (43:20): Well, I I do think you're the upfront part is you you need to explain the lease and and part of that includes uh I guess it's no different than selling the truck. What are you going to do with the truck? You know, well, I'm going to pull all the huge trailer with a whole lot of weight or whatever. So, the the rear end axle ratio gets important because that goes to fuel economy as well as will it even pull it? Well, it's kind of that sort of thinking with a lease. Those typically, you're right. Typically, those not only do they those factory uh lease ads ask, I mean, advertise a low payment and ask for a fairly substantial cap reduction. Typically, they're 10,000 mi a year. Mhm. With a fairly fairly significant mileage penalty. So, yeah, we got to be we can't just sell the payment if we're selling the lease. We've got a sort of match it to what their driving habits are. Are they a 20,000 mile per year driver, 25,000? You need to make that adjustment because it will affect the payment less than the per mile penalty if they exceed that ceiling at at lease end. So, we got to get honest on that part of it as as the salesperson involved. Otherwise, we have put them in a trick bag and and everything we've tried to talk about in a positive way about leasing goes away if they've got a three or four thousand dollar mileage penalty to get out of their lease because we didn't set it up right. Right. So, that's that's a biggie and you have to pay attention to that.

Chris Keene (44:50): But, you're still if you set the lease up right, if you're looking at their trade-in and they are an 18,000 mile a year person and you're setting it up properly, viewers and listeners understand, you're still putting the consumer in a great position because now they get to control the narrative at the end of the term. They have guarantees.

Jim Holman (45:13): In my independent leasing, we decided to to we always figured if you can't name it, you can't own it. So, we named it the golden parachute program. And the golden parachute was you don't have to worry about what this car's worth at the end of the lease. And we really extrapolated that into a whole lot of dialogue and we thought it we thought it and and it if we caught one another talking about a lease, we'd correct ourselves. It's not a lease, it's a golden parachute. You know, I mean, it was just a mindset to keep it top of mind. Little game, sure, it's kind of corny, I get that, but those leases that we those leases were always we were leasing at that time cars times have changed and values have changed, but we were leasing cars that we probably had an ACV of around 8 to 10,000 tops and we were making about that much money. We were about doubling that the cost of that car. And then the next lease, about 40% of the time, I had when I was ready to sell my company, I had a group come in and I said well our goal is that 40% of the time we take we get 5 years. We were writing two and three year leases and we get 5 years of income stream out of every vehicle. And if we could do that 40% of the time, the rest of the time they either crash them, tear them up, or buy them. But 40% of the time we've got a car that we could tear it down to a lower, perhaps creditworthiness, uh individual and still put them in a nice car and get that ex- and we were we would shorten the term and get another 2 years income stream out of that car. I had a contr- a controller whom Chris would know, said to me when she started working for me, I don't like leasing. I said well I do and I'm the boss. I mean And so

John Anderson (47:02): Wait, you mean you did not have to you didn't have to uh explain uh how it was important to the business before she accepted the fact

Jim Holman (47:09): Okay. Granted, it's an indictment of your management style if you got to tell them who the boss is. But anyway, one day she one day she says to me, I owe you an apology. Okay, I'm clueless. She said and she pointed out and I can re- I can tell you it was a blue Chevy Trailblazer. I mean, you know how something will stick in your mind. She said, you know you've owned that car for 7 years. You paid $8,000 for it in the ring. You've collected $21,000 in revenue for it since you've owned it. And I said, and I still own the car, don't I? And she said, yeah. So I mean, there's some that gets to be kind of the fun part of leasing. But when we were starting to sell our ve- our deal and they came in to audit all my portfolio and I told them the 40% and they said, it's not 40%. I said, well it was always a goal. I didn't chase it like hardcore. They said, no, no, you're about 53%." Getting 5 years and so we were doing better than we thought, but again, it was just it's a golden parachute. You don't have to pay for a market drop at the end of the lease if you're the lessee if there is one. But if there's an upside and it's substantial enough to cover the taxes that you have to pay to buy the the vehicle, buy it, flip it, and put the money in your pocket. So you have both best of both worlds and the lessee's the one that's in the decision-making uh seat at the end of the lease.

Chris Keene (48:35): Mhm. John, go. You You got some questions. I see it. I see it turning.

John Anderson (48:42): No. No, I really don't have questions. I What I really What I'm really thinking as I'm listening uh to Jim talk and the questions that Renaldo's been asking and everything and what's been talked about is just a refocusing everybody as to why we had Jim on today and what this call's about. And the the number one thing that we see is uh constantly brought up from our dealer partners is a struggle out there. Uh well, first of all, some of the things that Jim was talking about to discuss with your customers, it's not any different than what you're doing You should be doing anyway. You You're You know, you're you're having a discussion about uh feature and benefits for your customer, right? And so as Jim said, right? We're uh it's just another way to finance a car. Don't make a big deal about it and you're trying to put your customer You Listen, uh if if I want to do if I want to do what's best for my customer, then leasing has to be a part of the conversation. It just has to be. Um and then uh think about the ways that uh Jim alluded to and the benefits to me as a dealer. Uh uh just what he just talked about with his comp controller and the discussion that was had over that over that vehicle, right? That I still own it. Here's what Here's the income that it's generated for the dealership, right? And then And then uh what it does Look, uh I was I I was alluding this morning as a part of that conversation, uh I talked about one of our dealer partners who's been with us a long time, and I talked about them developing a uh a buying center. And and I remember, you know, some of the things that they did from at the beginning, first month, and you know, they bought 12 They bought 12 vehicles the first month. And it was a celebration for them. And and now what they're generating through that buying center. And so And that's taken some time. Why wouldn't I look at this as a at the same way? Yes, it it may take me some time, but I but I've got I've got to introduce it to everybody that comes through my door as an option and an opportunity one for the benefit of the customer, and two for the long-term benefit and and health of my store, right? Because as those leases come back in uh and and or uh maybe the it's a manufacturer, and they have other options, but if I've if I've brought that option up to my customer and uh it's put them in a much better situation, then again, back to the loyalty thing, they're going to reach out to me at the end of that lease, and I have an opportunity to have that that those those vehicles coming back in as a source to offset my dependency on the auction. So, again, I go back to what the reason why Chris you invited Jim on, what we're talking about here. Guys, it's it's it's just it's just what you you It's just what you have to do now. You've got to implement a platform uh for the benefit of your customer and that a long-term health of your dealership.

Jim Holman (51:38): John, may I? Yes, sir. Go for it. Uh I'll I'll you something that happened in this Cadillac store in Dallas and and we were a rather large Cadillac dealership in those days in the country. So, it was and and we were we were believing all of our press releases and writing most of them. So, there there was uh there was that. But, one of the things that we learned we were dealing with in those days the proliferation of all the luxury brands that that are there today was was not as great. Cadillac had a great greater market penetration and they've had some resurgence and comeback of late, but it was the franchise. It was pretty cool. But, we had all the CEOs and in those days we had Dallas Cowboys and Tom Landry. We had a lot of cool cool people as customers. But, what back to the specifics of leasing, then we learned that one time I leased five forklifts because the CEO had started out with a lease of the car and we expanded what we leased. The most ridiculous thing I leased was a helicopter. And because it all started with that Cadillac lease and we expanded what we could do for the customer. Then we started going in and saying, "Well, you've got trucks. Can we talk to you about your trucks?" And we felt like probably a little bit of false security with with we thought we were a fleet leasing company cuz we had these Mary Kay cars. So, we we were the experts, right? So, we didn't know any better, but we expanded what we leased and it it it was kind of cool. It worked pretty well. And I'm not saying that that could be exactly duplicated today, but I wouldn't I wouldn't kick the thought process out of bed because there may be some some form of that it might be extrapolated into a more today's thing, but leasing can give you uh maybe an expanded relationship with your customer that's not just car for car for person. I don't know. I just throw that out.

Chris Keene (53:40): No, that's great. Well, but in that ex- in that expansion though, listeners and viewers, and especially if you're a general manager listening in, a dealer principal, one of the things that everybody should be looking into, hell, sales people, sales managers, if you're trying to cuz you got that pressure of the volume of the gross, things of that nature, I highly encourage that everybody go look at what leasing opportunities you have on your certified pre-owned vehicles because used car leasing is still around and it's starting to make a resurgence. Right now, it's very healthy, it's very beneficial for both the dealership and the consumer on the CPO side of things, okay? So, I would highly recommend that you dive deeper into that. Jim, we're we're unfortunately because my god, we could have this conversation for 4 hours, but we're unfortunately we're coming up, you know, to an end here, but one thing and this is weaving in what John was talking about, what Ronaldo was talking about, Jim, what you've been talking about, but really weaving it all back into the acquisition of it, okay? Cuz I know you studied these dollars because John, you know how we look at everything in in terms of dollars versus units. Right? That's how this man taught me to look at the business years ago. But, with that being said, Jim, if you can improve your residual based financing, your leasing, whatever whatever term you want to call it, I don't give a shit what it is, but whatever term you want to call it, talk as brief as you can with the our dealer partners listening in on the benefit of having that inventory come back into you, but how you put you in the driver's seat as the dealer to keep yourself above water, not over appraising inventory, and actually owning your inventory right, how that builds you for growth with these leased vehicles two and three and four years down the road.

Jim Holman (55:48): Well, I I think one of the things we always did is is we would keep track of uh lease maturity dates on all of our leases. So, as a lease is coming due, let's say we're 90 120 days out, I don't know uh I don't know if there's a number, but we picked a number, and I want to say if my memory serves me, it was about 90 days out. And so, then we started trying to to have dialogue with with our lessees because some people that lease cars, especially their first lease, they don't really know the drill how to get out of it. So, part of it was we wanted to make it real simple for them, and we wanted to start the dialogue, and we wanted first shot at the next car they're going to get. A- And the byproduct of that is it's probably a 20% maybe as high as 20% of the people buy the cars for the residual value, maybe not even quite that high. 80% -ish of the cars that you lease, they're going to turn them back in to somewhere somehow. So, we started that dialogue early. We started trying to figure out where they were going with it because we we wanted not only to put them in a new car, we wanted to trap that car coming back off lease, especially the nice ones, because it just takes that much pressure off your used car team that's out there trying to find the to to retail. And typically, not 100% of the time, but typically the a lease return was a little nicer car maybe than than a just a a trade-in off the street, if you will. I can say this, Chris. I mean, I I retired, but in the all the years I was in the business, I was a dealer principal 36 of of of almost 50 years in in the business. Uh I was always looking at at the dealership profitability more than I was looking at a paycheck that I generated as a salesman and I'm not minimizing that. I'm just saying that part of the job, we have a high turnover industry and part of the job was to keep those guys making money and yes to make the dealership money, but I wanted everybody that was you know, on the food chain if you will, making money and if they close more leases and leasing being that that extra tool in the in the offerings to the to the uh to the consumer. Uh we can make more money. Grosses are higher on leases typically because you it is a pure payment decision with the lessee. You know, yeah, I remember the days of four square and all that kind of stuff and the illegality uh at least consumer laws are really anti quoting payments, but a lease it's all you got to talk about. So, it's a legal way to make it make everybody that at least have some uh introduction to a payment buying deal because we can get them in the lease, then we chase them early on and can move them into another lease and get that car on our used car lot. Everybody's winning.

Chris Keene (58:42): That's huge. I mean, that damn near just sums it up right there.

John Anderson (58:47): Hey Chris, can I throw something in real quick? Real quick.

Chris Keene (58:51): Please do. I was about to throw it to you and Ronaldo. Okay. What?

John Anderson (58:56): While we were on the while we were on here and and uh with Jim, Google uh the in 2025 the average mile of uh a trade-in uh and the and what it what AI come back and told me was the average mile of a trade-in uh in 2025 was 70,000 miles, but the percentage of trades coming in over 100,000 miles was growing, okay? Uh dealers uh out there. Um you got a lot of high mileage trade-ins on your lot, you want to change that? What we've been talking today can over time effectively change that. Would you rather have Would you rather have a lot full of 70,000, 80,000, 90,000, 100,000 mile units or would you rather have a lot full of 36,000 mile, 30,000 to 40,000 mile units sitting on your lot? And what's going to be more beneficial when you're when all else is when customers are out there looking at inventory, are they going to gravitate towards that inventory or would they are they looking at high mileage inventory? So, just a thought for you to think about. It ain't going to happen overnight and it's not going to flip a switch, but if I if I want to try to buck the trend of this people holding on to their cars longer and I'm getting these high mileage trade-ins, if I want to buck that trend, this is a way to do it.

Jim Holman (60:19): You know, John, one of the things we found too when we really chase leasing hard was that we were it was also an offering that most dealers didn't offer. Clientele, our competition didn't. It almost gave us a us maybe it was slight, maybe we oversold it in our own minds, but we felt like it gave us an advantage.

Chris Keene (60:42): No, you didn't oversell it, brother. It definitely gave you an advantage. No question. Yeah, an unfair competitive advantage. And it's been great. He probably had a lot of guys out there that you were competing against that were speaking about it in a negative way.

Jim Holman (60:58): Well, yeah, and most of them didn't understand it. So, we just we and we didn't we weren't 100% at closing, but we did a good job with it and the profit was good and then all the other benefits, you've got the customer coming back to you whereas we don't always get that advantage in a in a conventional selling environment, I don't think.

Chris Keene (61:17): No, not at all. Noldo, anything else to wrap?

Renaldo Leonard (61:21): Woo. Um I I would just encourage everyone out there listening or watching to if you have some questions you don't understand it, give us a call. Or or seek somebody in your area that that really seems to get it because there's no aspect of a dealership's finances that leasing cannot have a positive effect on. Mhm. I mean variable, fixed, it doesn't matter. It will give you a rise and an increase if you understand it and if you commit to it. And so I would just encourage everybody to do that. Dig a little deeper, get your questions answered, but figure out a way. It figure out a way to get it implemented and get it done. Yeah, figure out a win-win-win.

Jim Holman (62:03): car. What's that? Just another way to finance a car. Yes, sir.

Chris Keene (62:08): Right. It's a It's a win-win-win. I mean, folks, there you have it. I mean, Jim has probably said that no less than 20 times now. It's another way to finance a car. So, as you still got your pens and papers out, listen very closely. You in leasing or residual-based financing, whatever you want to call it, it gives your consumer a beginning, gives them an end. You're doing your consumer a justice. If you did not pick up on it, and this is 100% a factual piece in there. When you can give that beginning, when you can give that end, you're also improving your customer, you know, sales index in there. You're creating a better, you service index in there. So, you you've got better surveys coming back inside. Jim talked about addressing your F&I structure. Yeah, you may have to readjust that F&I structure, but again, as Ronaldo was talking about, re- re-looking at that F&I structure, re-looking at the way that your desk is penciling these deals. Okay? Maybe do you see a slight little decline here and there? Possibly so, but the overall incomes can improve because there's something that Jim didn't say that is just pure common sense on this. You're going to reduce F&I chargebacks having more leasing out there. But then most importantly, if you redo your structure and you make sure that you have the F&I product set in place to bring your consumer back into your service department each and every single time to get that vehicle serviced, guess what? There's more income inside there. Jim talked about it, you know, reducing that exposure rate of your dollars, you know, with your inventory keeping you above water, bringing inventory back in two and three four years down the road that you're not just buried alive in. And like John just talked about with that statistic of 70 80 100,000 mile rigs, bringing that inventory back in when it's 30 40,000 miles, maybe even 50, but I'll take that all day long at a value that's substantial to your market. I wrote this down like seven times here it looks like. Just another way to finance a car. But one of the things Jim talked about is is so so important. Formalized and informal training. You know, Ronaldo said it. Get with people within your within your market, within your dealership that may have that experience. For God's sake, reach out to us, lottalkpodcast.com. We have a gazillion different resources to be able to talk about leasing. And Jim may be as so kind in his retired days of doing nothing but hanging out. Not that that's all he does, but he may be so kind to, you know, maybe jump on a call with us and talk about some of these different things, whether it's from a salesperson's vantage point, an F&I manager's vantage point, a dealer principal, sales manager, GM. Reach out to us. Hell, we'll help you with that. But, the one that stood out the most, because this is going to solve a lot of challenges that we hear each and every day, follow that lease maturity date, so that way you could have a shot of owning that vehicle that's about to get disposed of. Yeah. But, more importantly, of still owning your customer and not letting them stray to the next dealership, next brand. Guys, we unpacked a lot here. I know we went a little bit longer than we we normally go, but uh Ronaldo, John, I I don't think we can thank Jim enough for being on. He gave us a wealth of knowledge. Great stuff.

Renaldo Leonard (65:48): Absolutely not. Yeah, it was. Yeah. I I love I love the fact that the golden parachute gave this man a golden parachute. Yes, it did. Yes, it did. It did.

Jim Holman (66:00): Absolutely. Thank you so much, Jim. Appreciate it. I'm I'm honored. Thank you for the opportunity, and I hope it I hope it's worthwhile to everybody listening.

Chris Keene (66:10): It is. I appreciate It is definitely is. Absolutely. 1 million percent. With that being said, ladies and gentlemen, we have gone a little bit over. Brett's probably going to kill us, but that's nothing unusual, because something crazy like that happens every week. Tune back in. Go to YouTube. Go to Spotify. Go to Apple. Rewatch this again. If you have any questions, per usual, go to lottalkpodcast.com. Reach out to John. Reach out to Ronaldo. Reach out to myself. Send that mail in. Throw your questions out there. We will definitely address every last one of them as we get them. But, more importantly, we thank you. We appreciate you. We wish you all nothing but success on behalf of Mr. John Anderson, on behalf of Mr. Ronaldo Leonard, and our special guest today, Mr. Jim Holman, and as our entire LotPop family, we thank you guys for tuning in. We will catch you same bat time, same bat channel next week. See you guys. Success. See you. Wreck 'em.