BMW Program Aims To Raise Owner Loyalty Rate, increase leasing
10-12-10, 10:38 AM
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BMW Program Aims To Raise Owner Loyalty Rate, increase leasing
BMW Program Aims To Raise Owner Loyalty Rate
German maker targeting increased leasing, but sees a decline in incentives.
by Paul A. Eisenstein on Sep.24, 2010
BMW wants you to trade in early.
BMW is betting on a new, high-tech marketing system to build both sales and owner loyalty rates.
The new program is designed to increase contact between the company and its customers – and to convince them to trade in their current BMW products sooner and more often, explains Shaun Bugbee, vice president of sales and marketing for the German maker’s American captive finance subsidiary.
Currently, about 55% of the customers who borrow money through BMW Financial pay off their loans ahead of schedule – typically at around 33 months on a 60-month contract, notes Bugbee. A key reason is that BMW has, for the last several years, been offering heavily subvented, or subsidized, loans, often with interest rates of just 0.9% or 1.9%. That makes it easy to pay down equity in a hurry.
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But the automaker has come to realize that when customers pay off their loans early they are more likely to trade in—often on a competing brand. Retail owner loyalty rates, Bugbee says, have been running just 20%. But a pilot program tested in BMW 12 dealerships has bumped that by as much as 12 percentage points. So, it is now being rolled out nationwide.
“It will look for people who are in an equity position after 18 months” from buying a new car financed by BMW Financial, the executive says. And, if they have a good payment history, they will be contacted about possibly trading in early for a new car or sport-activity vehicle that could be purchased at about the same monthly rate. “It’s a good conversation starter,” Bugbee suggests, noting the pilot program yielded a significant bump in sales and loyalty.
Currently, about 45% of BMW’s U.S. customers lease their vehicles, while 32% purchase their vehicles outright using BMW Financial. Another 23% either pay cash or finance using an outside lender, Bugbee says.
It’s a competitive market, and the low-interest programs have helped the captive finance subsidiary pick up business, especially during the financial meltdown, when many banks and other financial institutions were pulling back on automotive lending.
BMW is rethinking how heavily it needs to subsidize buyers, especially as the American luxury car market begins to revive. And Bugbee says he is, “starting to see movement upwards” in loan rates. Going forward, “Your FICO score (credit rating) will determine what rate you get. The higher your score the lower you get” in terms of interest rates.
The automaker is also looking at how much to emphasize leasing, a popular form of low-cost financing that took some big hits during the last two years of financial meltdown. In the middle of the last decade as many as six in 10 BMW vehicles were leased in the U.S. market. That is currently down in the mid-40% range, but Bugbee said the maker will try to push that back up to somewhere short of 50%.
One reason is that leasing provides a steady and predictable supply of used vehicles that feed BMW’s popular certified pre-owned program. In recent years, used vehicle volumes have nearly matched new. But while the maker’s dealers will take back 143,000 off-lease BMWs in 2010, that is expected to fall to just 94,000 next year. It is, says Bugbee, “an Achilles Heel” for a company that has put so much emphasis on its certified pre-owned, or CPO, effort.
That is another reason why BMW is now reaching out to retail customers who might be convinced to trade in early. This would not only help boost sales of new cars – but provide an increased flow of used BMWs to prop up the CPO program.
German maker targeting increased leasing, but sees a decline in incentives.
by Paul A. Eisenstein on Sep.24, 2010
BMW wants you to trade in early.
BMW is betting on a new, high-tech marketing system to build both sales and owner loyalty rates.
The new program is designed to increase contact between the company and its customers – and to convince them to trade in their current BMW products sooner and more often, explains Shaun Bugbee, vice president of sales and marketing for the German maker’s American captive finance subsidiary.
Currently, about 55% of the customers who borrow money through BMW Financial pay off their loans ahead of schedule – typically at around 33 months on a 60-month contract, notes Bugbee. A key reason is that BMW has, for the last several years, been offering heavily subvented, or subsidized, loans, often with interest rates of just 0.9% or 1.9%. That makes it easy to pay down equity in a hurry.
http://www.thedetroitbureau.com/about/subscribe
But the automaker has come to realize that when customers pay off their loans early they are more likely to trade in—often on a competing brand. Retail owner loyalty rates, Bugbee says, have been running just 20%. But a pilot program tested in BMW 12 dealerships has bumped that by as much as 12 percentage points. So, it is now being rolled out nationwide.
“It will look for people who are in an equity position after 18 months” from buying a new car financed by BMW Financial, the executive says. And, if they have a good payment history, they will be contacted about possibly trading in early for a new car or sport-activity vehicle that could be purchased at about the same monthly rate. “It’s a good conversation starter,” Bugbee suggests, noting the pilot program yielded a significant bump in sales and loyalty.
Currently, about 45% of BMW’s U.S. customers lease their vehicles, while 32% purchase their vehicles outright using BMW Financial. Another 23% either pay cash or finance using an outside lender, Bugbee says.
It’s a competitive market, and the low-interest programs have helped the captive finance subsidiary pick up business, especially during the financial meltdown, when many banks and other financial institutions were pulling back on automotive lending.
BMW is rethinking how heavily it needs to subsidize buyers, especially as the American luxury car market begins to revive. And Bugbee says he is, “starting to see movement upwards” in loan rates. Going forward, “Your FICO score (credit rating) will determine what rate you get. The higher your score the lower you get” in terms of interest rates.
The automaker is also looking at how much to emphasize leasing, a popular form of low-cost financing that took some big hits during the last two years of financial meltdown. In the middle of the last decade as many as six in 10 BMW vehicles were leased in the U.S. market. That is currently down in the mid-40% range, but Bugbee said the maker will try to push that back up to somewhere short of 50%.
One reason is that leasing provides a steady and predictable supply of used vehicles that feed BMW’s popular certified pre-owned program. In recent years, used vehicle volumes have nearly matched new. But while the maker’s dealers will take back 143,000 off-lease BMWs in 2010, that is expected to fall to just 94,000 next year. It is, says Bugbee, “an Achilles Heel” for a company that has put so much emphasis on its certified pre-owned, or CPO, effort.
That is another reason why BMW is now reaching out to retail customers who might be convinced to trade in early. This would not only help boost sales of new cars – but provide an increased flow of used BMWs to prop up the CPO program.
10-12-10, 04:56 PM
#2
Lexus Fanatic
BMW also likes to push leasing because the typical BMW owner (in spite of some aggressive driving here and there) tends to take care of his or her car and not abuse it.....which is what the dealers want, of course, so that they won't have a bunch of 2-4 year old cars coming off-lease that are full of scratches/dents, excessive mileage on them, cracked glass, worn-out upholstery, etc.....
That's why Lease contracts typically have Wear-and-Tear and Mileage clauses. It costs a dealer/manufacturer money, of course, to repair and recondition poorly-cared-for vehicles before they can be re-sold on the marketplace.
That's why Lease contracts typically have Wear-and-Tear and Mileage clauses. It costs a dealer/manufacturer money, of course, to repair and recondition poorly-cared-for vehicles before they can be re-sold on the marketplace.
10-12-10, 05:37 PM
#3
bmw dealerships are actually very afraid of lease returns. they actually don't want that many, they don't care as much about the cpo / used market because they are flooded with returns and used car.
i personally know the general manager at a bmw dealership. he was telling me the whole leasing thing gives them lots of trouble. he says every month they see about 100 lease returns (or more), he says it's about the same across all dealerships. so you can imagine how many lease returns. he says years ago, it was cool when money was just flowing non-stop. but now it's a big pain coz' they are stuck with a lot of cars that just can't sell because the residual values are not realistic.
so i am surprised that bmw wants to push the lease number back up to 50% again. i would think they want to retain better values and have their owners buy the cars.
on another note, my friend told me bmw has in general upped the lease money factor making lease not as favorable. but they came out with this new interesting idea, which is somewhat a purchase plan. basically you "buy" a car and finance it for 5 years, BUT you don't pay off the car over the 5 yrs, you pay for say 80% of the car, and the remaining 20% is a lump sum at the end of 5 years. that way, monthly payment is less (closer to lease), and at the end of 5th yr, you have the choice to pay off or trade it in.
i actually think that's a pretty good plan (for bmw, not for customers).
i personally know the general manager at a bmw dealership. he was telling me the whole leasing thing gives them lots of trouble. he says every month they see about 100 lease returns (or more), he says it's about the same across all dealerships. so you can imagine how many lease returns. he says years ago, it was cool when money was just flowing non-stop. but now it's a big pain coz' they are stuck with a lot of cars that just can't sell because the residual values are not realistic.
so i am surprised that bmw wants to push the lease number back up to 50% again. i would think they want to retain better values and have their owners buy the cars.
on another note, my friend told me bmw has in general upped the lease money factor making lease not as favorable. but they came out with this new interesting idea, which is somewhat a purchase plan. basically you "buy" a car and finance it for 5 years, BUT you don't pay off the car over the 5 yrs, you pay for say 80% of the car, and the remaining 20% is a lump sum at the end of 5 years. that way, monthly payment is less (closer to lease), and at the end of 5th yr, you have the choice to pay off or trade it in.
i actually think that's a pretty good plan (for bmw, not for customers).
10-12-10, 05:50 PM
#4
Lexus Fanatic
bmw dealerships are actually very afraid of lease returns. they actually don't want that many, they don't care as much about the cpo / used market because they are flooded with returns and used car.
i personally know the general manager at a bmw dealership. he was telling me the whole leasing thing gives them lots of trouble. he says every month they see about 100 lease returns (or more), he says it's about the same across all dealerships. so you can imagine how many lease returns. he says years ago, it was cool when money was just flowing non-stop. but now it's a big pain coz' they are stuck with a lot of cars that just can't sell because the residual values are not realistic.
i personally know the general manager at a bmw dealership. he was telling me the whole leasing thing gives them lots of trouble. he says every month they see about 100 lease returns (or more), he says it's about the same across all dealerships. so you can imagine how many lease returns. he says years ago, it was cool when money was just flowing non-stop. but now it's a big pain coz' they are stuck with a lot of cars that just can't sell because the residual values are not realistic.
Correct me if I'm wrong, but I believe that was the case. Before the depreciation went up (and the residuals down), BMW, back then, had a field-day with leases. They could (and often did) charge more for the lease payments than the car's projected (and actual) value-drop, thereby making money when the cars were turned back in and re-sold. The shock-effect of the Chris-Bangle redesigns seems to have worn off, though, and it seems like, once again, BMW's are getting back to low depreciation....and profitable leasing. Plus, of course, the tendency of BMW owners to not treat their vehicles like farm trucks. 
10-12-10, 06:04 PM
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BMW wants to push their lease rate back up? I think the boys in Munich have lost it 
.
I've also heard from a variety of people, including some dealership people I know who told me lease returns are a big problem for BMW.
While this new plan might sound interesting, I think it will only increase lease returns, and those are a big cost to the company.
All of this hassle, simply because BMW owner loyalty is not that great. Perhaps BMW should focus more on dealership service and listening to customers to improve loyalty, instead of coming up with new lease plans and ideas.
.I've also heard from a variety of people, including some dealership people I know who told me lease returns are a big problem for BMW.
While this new plan might sound interesting, I think it will only increase lease returns, and those are a big cost to the company.
All of this hassle, simply because BMW owner loyalty is not that great. Perhaps BMW should focus more on dealership service and listening to customers to improve loyalty, instead of coming up with new lease plans and ideas.
10-12-10, 06:58 PM
#6
Lexus Champion
on another note, my friend told me bmw has in general upped the lease money factor making lease not as favorable. but they came out with this new interesting idea, which is somewhat a purchase plan. basically you "buy" a car and finance it for 5 years, BUT you don't pay off the car over the 5 yrs, you pay for say 80% of the car, and the remaining 20% is a lump sum at the end of 5 years. that way, monthly payment is less (closer to lease), and at the end of 5th yr, you have the choice to pay off or trade it in.
i actually think that's a pretty good plan (for bmw, not for customers).
i actually think that's a pretty good plan (for bmw, not for customers).
You basically have the right idea Henry, but there is no option to trade it in at the end of the term. It is a forced buy out. Basically, as the consumer, you are either confident that you will have the cash on hand for the buyout or that you will be in a position to re-finance the balance owing. The latter is the best case scenario for a dealer as you've now financed your vehicle over upwards of 72 months.
The speculation by a buyer is that you will hold enough value in your vehicle, either through low mileage (there is no mileage cap like in a lease) or great condition, to offset what the buyout is. In a best case scenario the owner could have positive equity and offset some of the interest payments they've made over the initial term.
10-12-10, 11:28 PM
#7
really? umm, coz' my friend told me at the end of 5th year, i can find someone to buy my car, or dealership can always buy my car for whatever price as well (if i think fair). i mean, if at the end of the 5th year, the owner has to pay for the residual of the car, then i don't see what's stopping the owner from just selling the car directly to 3rd party or dealership. but it's most definitely not a "return" since you still owe BMW financial the residual amount.
that's also why i think this strategy sounds good on paper but pretty dangerous for potential owners. like you said, you are effectively financing the car for 6-7 yrs, terrible idea. it gives people false sensation that the cars are more affordable now. and overall to bmw it's great coz' more cars are sold (100% on customer) rather than leased (~50% on customer).
that's also why i think this strategy sounds good on paper but pretty dangerous for potential owners. like you said, you are effectively financing the car for 6-7 yrs, terrible idea. it gives people false sensation that the cars are more affordable now. and overall to bmw it's great coz' more cars are sold (100% on customer) rather than leased (~50% on customer).
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10-12-10, 11:41 PM
#8
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really? umm, coz' my friend told me at the end of 5th year, i can find someone to buy my car, or dealership can always buy my car for whatever price as well (if i think fair). i mean, if at the end of the 5th year, the owner has to pay for the residual of the car, then i don't see what's stopping the owner from just selling the car directly to 3rd party or dealership. but it's most definitely not a "return" since you still owe BMW financial the residual amount.
that's also why i think this strategy sounds good on paper but pretty dangerous for potential owners. like you said, you are effectively financing the car for 6-7 yrs, terrible idea. it gives people false sensation that the cars are more affordable now. and overall to bmw it's great coz' more cars are sold (100% on customer) rather than leased (~50% on customer).
that's also why i think this strategy sounds good on paper but pretty dangerous for potential owners. like you said, you are effectively financing the car for 6-7 yrs, terrible idea. it gives people false sensation that the cars are more affordable now. and overall to bmw it's great coz' more cars are sold (100% on customer) rather than leased (~50% on customer).
You are also right that it can be a dangerous situation for a buyer that may not be able to afford the buy out at the end of the initial term. However, with some of the very low rates that BMW offers it isn't a bad choice if you can scratch a check at the end of the term or if you care for your vehicles well enough that you can sell it for above market average at the end of the term.
I still don't agree with those that insist on paying cash for vehicles. With the extremely aggressive tactics and very low interest payments it makes more sense to finance or lease at say 1-4% than tying up a large amount of cash in a depreciating asset. I'd rather finance at a low rate and put the cash into an investment that will generate north of say 8%, but that's just me.
10-13-10, 07:08 AM
#9
Lexus Fanatic
BMW and leasing continues to go hand-in-hand, a good way to disguise discounts too.
btw - the wear & tear clauses on leases are plenty genereous and allows far more wear and tear than most of us will incur in a 3 year lease period. A car can be turned in at end of lease in relatively ratty condition without penalty. And reconditioning/repair of the minor defects is expected to prep the cars for resale via BMW dealership.
btw - the wear & tear clauses on leases are plenty genereous and allows far more wear and tear than most of us will incur in a 3 year lease period. A car can be turned in at end of lease in relatively ratty condition without penalty. And reconditioning/repair of the minor defects is expected to prep the cars for resale via BMW dealership.
10-13-10, 08:48 AM
#10
Sorry Henry, maybe I was confusing in my previous post. You are correct. Of course you do have the right to sell it to a 3rd party or back to the dealer, but you would get killed selling it back as there is no way they would give you anywhere close to the total of the buyout.
You are also right that it can be a dangerous situation for a buyer that may not be able to afford the buy out at the end of the initial term. However, with some of the very low rates that BMW offers it isn't a bad choice if you can scratch a check at the end of the term or if you care for your vehicles well enough that you can sell it for above market average at the end of the term.
I still don't agree with those that insist on paying cash for vehicles. With the extremely aggressive tactics and very low interest payments it makes more sense to finance or lease at say 1-4% than tying up a large amount of cash in a depreciating asset. I'd rather finance at a low rate and put the cash into an investment that will generate north of say 8%, but that's just me.
You are also right that it can be a dangerous situation for a buyer that may not be able to afford the buy out at the end of the initial term. However, with some of the very low rates that BMW offers it isn't a bad choice if you can scratch a check at the end of the term or if you care for your vehicles well enough that you can sell it for above market average at the end of the term.
I still don't agree with those that insist on paying cash for vehicles. With the extremely aggressive tactics and very low interest payments it makes more sense to finance or lease at say 1-4% than tying up a large amount of cash in a depreciating asset. I'd rather finance at a low rate and put the cash into an investment that will generate north of say 8%, but that's just me.
regarding finance / cash, i agree with you as well. a lot of time the overall interest rates are so attractive, and even with mild to medium investment, the return is already more than enough to cover the interest on the vehicle. i always do all the math before buying a car to see which option will be the most beneficial (that's why i leased my gs350 and buy out, ends up cheaper than financing for 3 yrs). but i also have the mentality that if i were to buy something today, i make sure i actually have to cash to buy out now, if necessary, set that money aside for other use (investment), and then finance the car.
problem with majority of american is they live paycheck to paycheck. they have no problem, let alone doing all the math to figure out what's best. what we talking about here makes sense (well at least to you and me), but that also requires a lot of planning and calculation, which from my experience is lacking for a lot of people. they look at nothing but payment. if they can squeeze it, then that means they can afford it. that makes it dangerous. coz' they end up paying interest over 6-7 years, but they have zero investment or returns...
BMW and leasing continues to go hand-in-hand, a good way to disguise discounts too.
btw - the wear & tear clauses on leases are plenty genereous and allows far more wear and tear than most of us will incur in a 3 year lease period. A car can be turned in at end of lease in relatively ratty condition without penalty. And reconditioning/repair of the minor defects is expected to prep the cars for resale via BMW dealership.
btw - the wear & tear clauses on leases are plenty genereous and allows far more wear and tear than most of us will incur in a 3 year lease period. A car can be turned in at end of lease in relatively ratty condition without penalty. And reconditioning/repair of the minor defects is expected to prep the cars for resale via BMW dealership.
and moreover, getting tear and wear insurance is pretty cheap as well. like my m3, i am paying 10 bucks a month for exterior / interior tear and wear. over 3 yrs that's like 300 bucks? and i can return my car like trash (and tires down to wire) and i am not charged a dime. what a deal. i drive my car without thinking much
10-14-10, 12:37 AM
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But the automaker has come to realize that when customers pay off their loans early they are more likely to trade in—often on a competing brand. Retail owner loyalty rates, Bugbee says, have been running just 20%. But a pilot program tested in BMW 12 dealerships has bumped that by as much as 12 percentage points. So, it is now being rolled out nationwide.
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