Hyundai Motor Finance
Introduction to Leasing
Facilitator: Terry Rosinski
© 2016 Hyundai Motor Finance
January 2016
1
House Rules
•
•
•
•
Have Fun
Participate
Be in the Moment
Cell phone etiquette
© 2016 Hyundai Motor Finance
2
Agenda
• Why Leasing? Why Now?
• Understand leasing basics:
–
–
–
–
•
•
•
•
Terminology
Definition
Difference to Financing
Benefits
Hyundai Motor Finance (HMF) lease features
How to present a lease and finance option
How to determine what’s right for the customer
Why leasing and loyalty are synonymous
© 2016 Hyundai Motor Finance
3
Your Expectations
© 2016 Hyundai Motor Finance
4
What’s in it for You?
By the end of this off-site training program, you will have
a better understanding of:
• The HMF leasing option.
• The basics of leasing and benefits for the Customer, Sales
Consultant and Dealership.
• The features of an HMF 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.
© 2016 Hyundai Motor Finance
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Why Leasing?
Why Now?
© 2016 Hyundai Motor Finance
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Hyundai Sales & Market Share
160,000
8.1%
8.1%
7.6%
140,000
9.0%
7.9%
7.1%
7.5%
7.3%
7.0%
120,000
6.0%
4.9%
129,012
138,104
118,507
103,233
80,632
75,005
60,000
137,100
5.0%
80,000
136,283
4.5%
129,240
100,000
40,000
8.0%
4.0%
3.0%
2.0%
20,000
1.0%
0
0.0%
2007
Source: DesRosiers Automotive.
2008
2009
2010
Retail Sales
2011
2012
2013
2014
YTD Nov
2015
Market Share
© 2016 Hyundai Motor Finance
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Retail Finance Penetration
90.0%
80.0%
78.5%
67.6%
70.0%
57.4%
60.0%
53.0%
51.4%
50.0%
40.0%
31.6%
37.2%
36.6%
30.0%
20.0%
10.0%
0.0%
Hyundai
Hyundai
Nissan
Nissan
Toyota
Toyota
Honda
Honda
Mazda
Mazda
VW
VW
Kia
Kia
Industry
Industry
Source: J.D. Power & Associates – PIN Explorer - YTD November 2015
© 2016 Hyundai Motor Finance
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Lease Penetration Rate
50.0%
45.5%
45.0%
40.8%
39.7%
40.0%
35.0%
31.4%
31.2%
30.0%
25.9%
25.0%
20.0%
15.0%
16.8%
10.4%
10.0%
5.0%
0.0%
Hyundai
Nissan
Hyundai
Nissan
Toyota
Toyota
Honda
Honda
Mazda
Mazda
VW
VW
Kia
Kia
Industry
Industry
Source: Canada Polk Registration Data YTD October 2015
© 2016 Hyundai Motor Finance
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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.
© 2016 Hyundai Motor Finance
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Brand Loyalty by Finance Type
70%
61%
60%
52%
48%
50%
51%
40%
30%
20%
10%
0%
Captive Lease
Captive Retail
Non-Captive Retail
Overall Brand
Loyalty Rate
Source: Hyundai Capital of America Internal Rolling 12-month Loyalty by Finance Type Study – July 2013 to June 2016
•
Captive Lease Customers are more loyal than Retail Customers
© 2016 Hyundai Motor Finance
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What is a ‘Captive’ Finance Company?
A finance company
in partnership
with the
Manufacturer.
© 2016 Hyundai Motor Finance
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Hyundai Motor Finance
• HMF is a ‘captive’ finance company.
• A captive finance company is closely allied with its
manufacturing partner.
• HMF exists to support Hyundai Canada and Canadian
Hyundai dealerships.
• HMF’s objectives are to:
– Increase Hyundai vehicle sales
– Support Hyundai dealership profitability
– Increase Hyundai customer loyalty and retention
© 2016 Hyundai Motor Finance
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Benefits of HMF as a ‘Captive’
• 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.
© 2016 Hyundai Motor Finance
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Benefits of HMF as a ‘Captive’
• 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.
© 2016 Hyundai Motor Finance
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Introduction to Leasing
Participant Guide: Page 4
© 2016 Hyundai Motor Finance
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Activity: Define the Terms
Definitions
Terms
•
•
•
•
•
•
•
•
•
•
•
Lease
Lessee
Lessor
Capitalized Cost
Capitalized Cost
Reduction
Net Capitalized Cost
Residual Value
Early Termination
End of Term
Mileage Allowance
Mileage Charge
Exclusive use contract for a set period of time
Customer utilizing the leased vehicle
Owner of the leased vehicle
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”.
“Down Payment”. Can include cash, trade value, manufacturer programs
or promotions.
Price of the vehicle after deductions
Value of a vehicle at the end of the lease
Ending a lease before the end-of-term date
End of the lease term
Max. km to be driven per year without penalty
A Charge levied when the mileage allowance is exceeded
© 2016 Hyundai Motor Finance
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What is Leasing?
A cost-effective way
to have use of a vehicle
for a fixed period of time.
© 2016 Hyundai Motor Finance
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The Life Cycle of a Vehicle
Gas and Go
Maintenance
0 – 3 Years
3 – 5 Years
(0 – 60,000 KMs)
(60,000 – 100,000 KMs)
 Happy Customer
 Monthly payment
 Regular maintenance: tire
rotation and oil changes
 Full warranty and
peace of mind
 Regular maintenance plus
costs encountered for new
tires, brakes and other
upkeep
 Monthly payment
Repair and
Replace
5 Years and Older
(100,000 KMs and up)
 Expired warranty
 Replace high ticket items
 ‘What will happen?’
 May still be paying loan
 Average maintenance:
$125-$150/month (CAA)
© 2016 Hyundai Motor Finance
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Comparison:
Lease and Loan Financing
Lease
•
•
•
•
•
Loan
Ownership
Ownership of the vehicle is In the
• Ownership of the vehicle is In the
name of lessor during lease term.
name of the customer.
Pay for use during the lease term.
• Lien registered by lender until paid in
full.
Payment and Taxes
• Entire purchase price of the vehicle is
Lease payments calculated on the
paid upfront, including taxes.
portion of the vehicle's value used
• Taxes calculated on purchase price.
during the lease term.
Taxes calculated on monthly
payment.
Customization
Done through dealer at time of
• Vehicle can be customized at any
acquisition. (TBD)
time.
• Any brand accessories can be used.
© 2016 Hyundai Motor Finance
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Comparison:
Lease and Loan Financing
Lease
•
•
•
•
•
Loan
Mileage
• No mileage limits.
Mileage options selected at lease
• Higher mileage lowers vehicle's
inception.
trade-in or resale value.
Option to purchase additional kms at
lease inception.
Excess mileage charges may apply.
Maximum Capitalized Cost Allowance
Maximum capital amount calculated • Depends on lender, but generally
for a lease is 125%.
140%
Generally lower than a loan: taxes • Generally higher than a lease:
can't be factored into lease financing.
taxes can be factored into loan
financing.
© 2016 Hyundai Motor Finance
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Comparison:
Lease and Loan Financing
Lease
Loan
Maintenance
• Regular maintenance of the
• Greater expense for repairs when
vehicle needs to be maintained.
maintenance is not maintained.
Guaranteed Asset Protection (GAP Insurance)
• Protection against total vehicle
• In the event of a total vehicle loss,
loss.
insurance company pays out on the
• Included with HMF Lease.
market value of the vehicle.
• Can be a difference between what is
owed and the payout.
© 2016 Hyundai Motor Finance
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Comparison:
Lease and Loan Financing
Lease
Loan
End of Term
• Lease Customers have options: • At the end of the loan the customer
purchase, return the vehicle or
owns the vehicle.
lease/finance a new vehicle.
• Can keep or trade-in on next
vehicle.
Insurance Considerations
• Lessees must have a minimum of • Insurance is in the name of the
$1 million in liability insurance.
vehicle owner.
• Lessor must be listed on the
• Insurance coverage will be
policy.
recommended by the owner's
insurance company .
© 2016 Hyundai Motor Finance
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Leasing is…
• An opportunity to attract
competitor’s customers
• Another financing choice for
the customer
– Leasing won’t always be the
lowest cost
• Not a replacement for loan
financing
© 2016 Hyundai Motor Finance
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Long Term Financing Advantages
For the Customer:
• Structured payment process
• Payments are designed to meet the
capability of the borrower to pay
• Credit worthiness and history is built
over time (Credit Rating)
Participant Guide: Page 7
© 2016 Hyundai Motor Finance
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Long Term Financing Disadvantages
For the Customer:
• Expired comprehensive warranty
(if over 60 months)
• Increased maintenance
• Customer dissatisfaction
• Negative equity (discuss)
Participant Guide: Page 7
© 2016 Hyundai Motor Finance
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Long Term Financing Disadvantages
When entering into a long term finance contract, there are some things
the customer has control over and others they don’t. All of these
affect the value of the vehicle as it depreciates over time.
Control
No Control
Kilometres Driven
Economy - Resale
Cleaning, General Care
New Model – Platform/Redesign
Regular Maintenance
New Technologies
Price of Gas
Warranty
Participant Guide: Page 7
© 2016 Hyundai Motor Finance
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Long Term Financing Advantages
For the Dealership:
• Bank loan reserve (standard rate)
• Affordability of long term loan
payments means:
– happy customer (short term)
– more conquest sales
Participant Guide: Page 7
© 2016 Hyundai Motor Finance
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Long Term Financing Disadvantages
For the Dealership:
• Losing visibility in buying cycle with
customer
• No scheduled purchase decisions
• Losing out on opportunities for used
vehicle sales
Participant Guide: Page 7
© 2016 Hyundai Motor Finance
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Long Term Financing Advantages
For the Sales Team:
• Ability to sell a vehicle is increased
with low long term financing rates
• Provide customers with a payment
that meets their needs
Participant Guide: Page 7
© 2016 Hyundai Motor Finance
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Long Term Financing Disadvantages
For the Sales Team:
• Losing out on loyalty opportunities
• Losing out on more sales over
shorter timeframes
Participant Guide: Page 7
© 2016 Hyundai Motor Finance
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Long Term Financing Disadvantages
For the Sales Team:
© 2016 Hyundai Motor Finance
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Break
© 2016 Hyundai Motor Finance
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Activity: Leasing Benefits
Participant Guide: Page 8
© 2016 Hyundai Motor Finance
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Customer Benefits
•
•
•
•
•
•
New car more often
No risk of accelerated depreciation
No up front sales tax payments
In most cases, comprehensive warranty won’t run out
Less chance of costly repairs
Options at lease-end:
– Purchase the vehicle
– Return the vehicle
– Lease or finance a new vehicle
• More choice, less commitment
© 2016 Hyundai Motor Finance
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Dealership Benefits
• Less advertising and promotional costs
• Delivery of more vehicles with shorter
terms
• Ability to track customers during their lease
terms
• Good source of quality pre-owned vehicles:
– Late model
– Low mileage
– Maintenance history known
© 2016 Hyundai Motor Finance
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Sales Team Benefits
• Builds a base of returning customers
– Essential for career-minded Sales Consultants
• More opportunities to re-sell
• More sales and more referrals
© 2016 Hyundai Motor Finance
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Hyundai Motor Finance
Lease Features
© 2016 Hyundai Motor Finance
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HMF Lease Features
• Managed by HMF
• Choice of lease terms: 24,36,48,60
• Competitive Lease rates
– Set in conjunction with Hyundai Canada
• Standard 24,000 km/yr. allowance
 Additional can be purchased at lease inception
 Lower km leases available
• Guaranteed Asset Protection (GAP Insurance)
– Standard with every lease
• No Security Deposit required
© 2016 Hyundai Motor Finance
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Overview of the Leasing 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 HMF.
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 HMF.
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
Participant Guide Page 10
© 2016 Hyundai Motor Finance
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Presenting a Lease Option
© 2016 Hyundai Motor Finance
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Calculating a Lease Payment
Depreciation Cost = (Net Capitalized Cost – Residual Value) / Term
($25,000 - $13,000) / 36 = $333.33
Finance Cost = (Net Capitalized Cost + Residual Value) x Money Factor
($25,000 + $13,000) x 0.00121 = $45.98
Monthly Pre-Tax Payment = (Depreciation Cost) + (Finance Cost)
($333.33 + $45.98) = $379.31
Plus sales tax!
Participant Guide Page 11
© 2016 Hyundai Motor Finance
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Payment Option Analysis
2016 Tucson 2.0L Lux AWD**: 60 Month Loan vs 60 Month Lease
FINANCE
LEASE
$33,099.00
$1,795.00
MSRP
Delivery & Destination
$33,099.00
$1,795.00
$127.25
Other Taxes and Levies
$127.25
$35,021.25
Selling Price
Rebate/
Capitalized Cost Reductions
Before Tax Price
$35,021.25
Sales Tax (Assume 13%)
Amount Financed/
Net Capitalized Cost
N/A
$0.00
$35,021.25
$4,552.76
$39,574.01
$0.00
$35,021.25
$35,021.25
60
Term (In Months)
60
0.99%
Rate
1.79%
N/A
Money Factor
0.00075
N/A
Annual Kilometers
24,000
N/A
Residual Value (%)
36%
N/A
Residual Value ($)*
$12,597.84
$676.30
Base Monthly Payment
$409.20
$676.30
After-Tax Monthly Payment
(Assume 13%)
$462.40
*(MSRP + Delivery & Destination + Federal Air Excise Tax) × (Residual Value %)
**December 2015 Program
Participant Guide Page 12
© 2016 Hyundai Motor Finance
43
Payment Option Analysis
2016 Tucson 2.0L Lux AWD**: 84 Month Loan vs 48 Month Lease
FINANCE
LEASE
$33,099.00
$1,795.00
MSRP
Delivery & Destination
$33,099.00
$1,795.00
$127.25
Other Taxes and Levies
$127.25
$35,021.25
Selling Price
Rebate/
Capitalized Cost Reductions
Before Tax Price
$35,021.25
Sales Tax (Assume 13%)
Amount Financed/
Net Capitalized Cost
N/A
$0.00
$35,021.25
$4,552.76
$39,574.01
$0.00
$35,021.25
$35,021.25
84
Term (In Months)
48
2.49%
Rate
0.99%
N/A
Money Factor
0.00041
N/A
Annual Kilometers
24,000
N/A
Residual Value (%)
43%
N/A
Residual Value ($)*
$15,047.52
$513.86
Base Monthly Payment
$436.75
$513.86
After-Tax Monthly Payment
(Assume 13%)
$493.53
*(MSRP + Delivery & Destination + Federal Air Excise Tax) × (Residual Value %)
**December 2015 program
Participant Guide Page 13
© 2016 Hyundai Motor Finance
44
Lunch Break
© 2016 Hyundai Motor Finance
45
What’s Best for the Customer?
Discussion / Flip Chart
© 2016 Hyundai Motor Finance
46
Lease Customer Characteristics
• Typically don’t put excessive mileage on their
vehicles
• Don’t want costly maintenance as the vehicle
ages
• Going through a life change
(Kids/Empty Nest)
• Wish to change vehicles more often
• Customers coming from other brands who are
already leasing
© 2016 Hyundai Motor Finance
47
Activity: Qualifying Questions
Participant Guide: Page 13
© 2016 Hyundai Motor Finance
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Qualifying Questions
During the needs assessment ask the
following:
• Do you currently own or lease?
• How long do you traditionally keep your
vehicle?
• How far do you drive annually?
• Are you concerned about warranty
coverage?
© 2016 Hyundai Motor Finance
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Where to Find Lease Customers?
• Service Department
– Maintenance record
– Vehicle usage
• Dealership Management System
(DMS)
• e-Leads and Walk-Ins
• Customers coming from other
brands, already leasing
© 2016 Hyundai Motor Finance
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Break
© 2016 Hyundai Motor Finance
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Activity: Presenting a Lease Option
Participant Guide: Pages 12-15
© 2016 Hyundai Motor Finance
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Payment Option Analysis
2016 Tucson 2.0L Lux AWD**
60 / 60
FINANCE
LEASE
$33,099.00
$1,795.00
$33,099.00
$1,795.00
$127.25
84 / 48
FINANCE
LEASE
MSRP
Delivery & Destination
$33,099.00
$1,795.00
$ 33,099.00
$1,795.00
$127.25
Other Taxes and Levies
$127.15
$127.15
$35,021.25
$35,021.25
$35,021.25
$35,021.25
$0.00
$0.00
$0.00
$0.00
$35,021.25
$35,021.25
Selling Price
Rebate/
Capitalized Cost Reductions
Before Tax Price
$35,021.25
$35,021.25
$4,552.76
N/A
$4,552.76
N/A
$39,574.01
$35,021.25
Sales Tax (Assume 13%)
Amount Financed/
Net Capitalized Cost
$39,574.01
$35,021.25
60
60
Term (In Months)
84
48
0.99%
1.79%
Rate
2.49%
0.99%
N/A
0.00075
Money Factor
N/A
0.00041
N/A
24,000
Annual Kilometers
N/A
24,000
N/A
36%
Residual Value (%)
N/A
43%
N/A
$12,597.84
Residual Value ($)*
N/A
$15,047.42
$676.30
$409.20
Base Monthly Payment
$513.86
$436.75
$676.30
$462.40
After-Tax Monthly Payment
(Assume 13%)
$513.86
$493.53
*(MSRP + Delivery & Destination + Federal Air Excise Tax) × (Residual Value %)
**December 2015 Program
© 2014 Hyundai Motor Finance
53
Activity: Addressing Common Objections
• Want to own the vehicle: don’t
want to ‘rent’
• Drive too many kilometers to
consider leasing
• Encounter charges at the end of
the lease
• Can’t get out of a lease
Participant Guide: Page 16
© 2016 Hyundai Motor Finance
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Leasing and Loyalty
© 2016 Hyundai Motor Finance
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Leasing and Loyalty
• Loyalty is built over time through multiple touch points
and transactions
– Leasing process provides opportunities for multiple touch
points
• Every lease has an expiry: customer must return
– Unlike long term financing: we ‘hope’ they’ll return
© 2016 Hyundai Motor Finance
56
Leasing and Loyalty
• Data supports higher brand loyalty when a customer
leases their vehicle and for shorter terms
70%
61%
60%
52%
50%
48%
51%
40%
30%
20%
10%
0%
Captive
Lease
Captive
Retail
Non-Captive
Retail
Overall
Brand
Loyalty Rate
Source: Hyundai Capital of America Internal Rolling 12-month Loyalty by Finance Type Study – July 2013 to June 2016
© 2016 Hyundai Motor Finance
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Lease Renewal Process
REACH
• Reach out to qualified customers.
• Stay in touch over the term of the
lease.
• Help customers
understand their leaseend options.
• Capitalize on the
opportunity to resell to
known customers.
• Capitalize on the quality
pre-owned vehicles
coming off-lease in
used vehicle inventories
• Review customer needs on an
ongoing basis.
© 2016 Hyundai Motor Finance
58
Summary
© 2016 Hyundai Motor Finance
59
Your Expectations
© 2016 Hyundai Motor Finance
60
What’s in it for You?
By the end of this off-site training program, you will have
a better understanding of:
• The HMF leasing option
• The basics of leasing and benefits for the Customer, Sales
Consultant and Dealership
• The features of an HMF 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
© 2016 Hyundai Motor Finance
61
Hyundai Motor Finance
Introduction to Leasing
Thank you!
© 2016 Hyundai Motor Finance
January 2016
62