When I started researching this story, I had ten companies on my list of providers to call. While leasing has traditionally not been as heavily targeted when it comes to selling F&I products, I nevertheless found it interesting that at the end of the day, the vast majority of providers I called didn’t carry this particular product.

Which leads me to wonder why. Zach Matta, director, Product and Business Development, Family First Dealer Services, actually had a good explanation for it. “A very strong OEM presence exists with Excess Wear & Tear (EWT) due to the fact that a large majority of leases are held by OEM captives or OEM-partnered finance companies,” he noted. “It’s clear why; considering EWT protects and most often increases CSI scores which in turn supports retention efforts, one of the core tenets of the leasing concept. The lesser EWT presence is of Third Party Administrators (TPA). There are few TPAs that stand out above the rest in this product category. Why? It is not clear. Theories include faithful underwriter relationships, the volatile loss environment of the past and the protection of loss data. In terms of the future of the market, we will see OEM’s continue to hold the majority market share for the same three reasons there are few TPA players in this space.”

That being said, two providers do offer the product, and had some interesting insights into it. One was the increasing need for higher coverage amounts. Dave Duncan, president, Safe-Guard Products International noted that his company increased it’s coverage from $500 per occurrence to $1,000 per occurrence. “Technological advancements are the main reason the per-occurrence coverage of our program has increased from $500 to $1,000,” he noted. “For example, windshields now incorporate heads-up displays and rain sensors. It may cost more than $500 to replace a windshield. While limits are in place so Excess Wear & Tear coverage isn't used instead of primary insurance, as components become more advanced, we'll see more claims that are more than $500.”

That additional coverage becomes even more important, with many lease companies becoming far more inflexible about waiving customer fees, said Gerry Gould, director of training, United Development Systems. “In the past many excess wear & tear charges could be negotiated and often times reduced or even waived if the customer leased or purchased with the same manufacturer after the lease was terminated. I think it’s safe to say that today the lease companies have become less flexible as a result of the loss ratios in the past. Many lease companies are now sticking to what is stated as normal versus excess use & wear on their lease agreements.”

He went on to note that in many cases, the dealer used to conduct the inspections at the end of the lease, but now, many lease companies have their own third-party inspectors on sight making the determination as to what’s normal and what would be considered excessive wear and tear. Which makes this product even more attractive.

Then and Now

While the product continues to evolve, American Auto Guardian Inc. (AAGI) noted that it believes it created a product to fill a need almost a decade ago. “AAGI was the first provider to introduce an excess wear & tear product back in 1997,” said Kristen Gruber, vice president of product development. “We wanted a product designed for lease customers and there wasn’t much to offer at the time. The product was a natural fit because most customers were familiar with the excess wear and tear provision in their lease agreement and they understood their accountability for damages at lease end. Customer satisfaction at lease termination is key to brand loyalty and excess wear & tear is a great way to improve CSI and increase retention.”

Gruber believes that leasing rates as a whole will remain fairly stead over the next few years. She believes the growth of this product won’t come from larger pool of customers, but instead from showing more of those customers who lease the value of the product. “AAGI’s growth will come from expanding our existing agent and OEM base as well as developing additional product niches,” she noted.

Duncan agreed, noting that the key to growing the product category is showing the lease customers the value of the products. “Leasing is approaching 30 percent of the market,” he noted. “Although finance managers have less F&I products to offer, since GAP comes with the lease and many lease terms fall under the factory warranty period, smart finance managers will offer products with the most benefits for lease customers. In addition to excess wear & tear, tire & wheel is a core product for lease customers. Paintless dent repair, windshield protection and key replacement are also great products to offer to lease customers.”