Drop in lease returns threatens brand loyalty
07-10-12, 08:00 AM
#1
Guest
Posts: n/a
Drop in lease returns threatens brand loyalty
Pretty common sense article. Some nice figures.
66% of BMWs are leased, 76% of Benz's are leased
http://www.autonews.com/article/2012...120709981/1142
66% of BMWs are leased, 76% of Benz's are leased
http://www.autonews.com/article/2012...120709981/1142
A drop in returning lease customers, reflecting a drop in lease originations during the recession, is a headwind for captive finance companies and dealers trying to rebuild leasing and the brand loyalty that goes with it.
"It's harder to prospect because it's harder to predict when a retail [loan] customer will be in the market," says Shaun Bugbee, vice president of sales and marketing for BMW Group Financial Services.
He says the captive's lease customers stay with the BMW brand 44 percent of the time, vs. 25 percent for loan customers.
Among customers, "90 to 95 percent go to the end of the scheduled lease," he told Automotive News in a phone interview. BMW of North America, its captive finance company and BMW dealers can precisely target their marketing messages, and dealers can count on those customers to show up with their lease returns.
Leases preferred
Bill Underriner, chairman of the National Automobile Dealers Association, said earlier that he prefers leases to loans because lease customers are so loyal and because they turn over vehicles more frequently.
Underriner even owns his own leasing company. He is the general manager for Underriner Motors in Billings, Mont., which sells Buick, Honda, Hyundai and Volvo vehicles.
Statistically, it's relatively easy to get a returning lease customer into another lease. It's harder to get someone who purchased his or her last car to purchase or lease a new one from the same brand, according to Maritz Research of Fenton, Mo.
For the industry, brand loyalty for returning lease customers going into another lease was 63 percent for October through December 2011, the first three months of the 2012 model year, data from Maritz show. (See table, right.)
In contrast, customers who purchased their last vehicle then purchased another one from the same brand 39 percent of the time. Only 31 percent of purchasers later leased a vehicle from the same brand, Maritz said. Purchases include cash customers and customers who got a loan, the research firm said.
Ripple effect
The drop in returning lease customers today is a direct reflection of the earlier drop in lease originations. Leasing initially fell in mid-2008 when gasoline prices spiked and the resale value of off-lease trucks fell through the floor. Alarmed by unexpected losses and uncertain about future residual values, finance companies fled the automotive leasing market.
The remaining lease volume dropped along with the rest of the market during the economic downturn in the last half of 2008 and 2009. Lease penetration has since recovered, but the fall-off in lease returns persists.
The former Chrysler Financial quit leasing entirely in August 2008. Ford Motor Credit Co. and the former GMAC Financial Services cut back on leasing, too. According to Maritz, lease penetration bottomed out at only 10 percent of retail volume for the 2009 model year, down from 17 percent of U.S. retail volume the model year before.
Naturally, that meant fewer lease returns down the road. Bugbee said BMW Group Financial Services expects about 85,000 scheduled lease terminations this year. That's roughly even with 2011 but down from more than 150,000 in 2010. He said lease returns should pick up in 2013 and increase again in 2014.
Prestige vs. mass-market brands
Leasing is more critical for prestige brands with a high lease penetration, such as BMW. Bugbee said the captive finance company accounts for about 75 percent of the BMW brand's total volume, with leases outnumbering loans about 2-to-1 so far this year.
According to Experian Automotive, leasing accounted for 76 percent of new-vehicle volume for Mercedes-Benz Financial in the first quarter.
Mass-market brands are less dependent on leasing.
Ford Credit is OK with its present lease penetration, which is "on track with our plan," a spokeswoman said. The captive doesn't usually report its lease penetration. According to Experian Automotive, 31 percent of Ford Credit's new-vehicle originations in the first quarter of 2012 were leases, vs. an industry average of 24 percent.
Ford Credit said it expects about 117,000 lease terminations in 2012, down from 246,000 in 2011 and 408,000 in 2010.
GM wants more
On the other hand, General Motors has said it would like to increase its lease penetration. Part of GM's motivation in buying the former AmeriCredit Corp. in 2010 was to boost leasing, but that's off to a slow start. In the first quarter, GM said its U.S. lease penetration was 13 percent, down from 17 percent a year earlier. Not counting its own leases, GM says the industry average was 22 percent for the first quarter.
Ally Financial, the preferred lender for GM, Chrysler Group and others, said leasing for GM and Chrysler accounted for 17 percent of its U.S. originations in the first quarter, including new and used vehicles. That was down from 19 percent a year earlier.
It's taking time for leasing to recover, but it will be worth it for the automakers, said Chris Travell, vice president of strategic consulting for the Automotive Research Group of Maritz Research, based in its Mississauga, Ontario, office. Said Travell: "Leases result in higher loyalty, full stop."
Read more: http://www.autonews.com/article/2012...#ixzz20EReGRJW
"It's harder to prospect because it's harder to predict when a retail [loan] customer will be in the market," says Shaun Bugbee, vice president of sales and marketing for BMW Group Financial Services.
He says the captive's lease customers stay with the BMW brand 44 percent of the time, vs. 25 percent for loan customers.
Among customers, "90 to 95 percent go to the end of the scheduled lease," he told Automotive News in a phone interview. BMW of North America, its captive finance company and BMW dealers can precisely target their marketing messages, and dealers can count on those customers to show up with their lease returns.
Leases preferred
Bill Underriner, chairman of the National Automobile Dealers Association, said earlier that he prefers leases to loans because lease customers are so loyal and because they turn over vehicles more frequently.
Underriner even owns his own leasing company. He is the general manager for Underriner Motors in Billings, Mont., which sells Buick, Honda, Hyundai and Volvo vehicles.
Statistically, it's relatively easy to get a returning lease customer into another lease. It's harder to get someone who purchased his or her last car to purchase or lease a new one from the same brand, according to Maritz Research of Fenton, Mo.
For the industry, brand loyalty for returning lease customers going into another lease was 63 percent for October through December 2011, the first three months of the 2012 model year, data from Maritz show. (See table, right.)
In contrast, customers who purchased their last vehicle then purchased another one from the same brand 39 percent of the time. Only 31 percent of purchasers later leased a vehicle from the same brand, Maritz said. Purchases include cash customers and customers who got a loan, the research firm said.
Ripple effect
The drop in returning lease customers today is a direct reflection of the earlier drop in lease originations. Leasing initially fell in mid-2008 when gasoline prices spiked and the resale value of off-lease trucks fell through the floor. Alarmed by unexpected losses and uncertain about future residual values, finance companies fled the automotive leasing market.
The remaining lease volume dropped along with the rest of the market during the economic downturn in the last half of 2008 and 2009. Lease penetration has since recovered, but the fall-off in lease returns persists.
The former Chrysler Financial quit leasing entirely in August 2008. Ford Motor Credit Co. and the former GMAC Financial Services cut back on leasing, too. According to Maritz, lease penetration bottomed out at only 10 percent of retail volume for the 2009 model year, down from 17 percent of U.S. retail volume the model year before.
Naturally, that meant fewer lease returns down the road. Bugbee said BMW Group Financial Services expects about 85,000 scheduled lease terminations this year. That's roughly even with 2011 but down from more than 150,000 in 2010. He said lease returns should pick up in 2013 and increase again in 2014.
Prestige vs. mass-market brands
Leasing is more critical for prestige brands with a high lease penetration, such as BMW. Bugbee said the captive finance company accounts for about 75 percent of the BMW brand's total volume, with leases outnumbering loans about 2-to-1 so far this year.
According to Experian Automotive, leasing accounted for 76 percent of new-vehicle volume for Mercedes-Benz Financial in the first quarter.
Mass-market brands are less dependent on leasing.
Ford Credit is OK with its present lease penetration, which is "on track with our plan," a spokeswoman said. The captive doesn't usually report its lease penetration. According to Experian Automotive, 31 percent of Ford Credit's new-vehicle originations in the first quarter of 2012 were leases, vs. an industry average of 24 percent.
Ford Credit said it expects about 117,000 lease terminations in 2012, down from 246,000 in 2011 and 408,000 in 2010.
GM wants more
On the other hand, General Motors has said it would like to increase its lease penetration. Part of GM's motivation in buying the former AmeriCredit Corp. in 2010 was to boost leasing, but that's off to a slow start. In the first quarter, GM said its U.S. lease penetration was 13 percent, down from 17 percent a year earlier. Not counting its own leases, GM says the industry average was 22 percent for the first quarter.
Ally Financial, the preferred lender for GM, Chrysler Group and others, said leasing for GM and Chrysler accounted for 17 percent of its U.S. originations in the first quarter, including new and used vehicles. That was down from 19 percent a year earlier.
It's taking time for leasing to recover, but it will be worth it for the automakers, said Chris Travell, vice president of strategic consulting for the Automotive Research Group of Maritz Research, based in its Mississauga, Ontario, office. Said Travell: "Leases result in higher loyalty, full stop."
Read more: http://www.autonews.com/article/2012...#ixzz20EReGRJW
07-10-12, 10:24 AM
#2
Leasing is more critical for prestige brands with a high lease penetration, such as BMW
this is interesting.
honestly, i used to think leasing is bad because it doesn't have ownership especially when it comes to luxury brands (poseurs?). but now i am on more forums and able to see what people do, i notice a lot more people lease because they "can", meaning easily switch to something newer and better every 2-3 years, and they are filthy rich.
this report is interesting though, showing drop in lease return due to economy. i think this exactly shows where the "poseurs" are heading, since they can't really afford luxury brands anymore. definitely interesting to see where this heads
this is interesting.
honestly, i used to think leasing is bad because it doesn't have ownership especially when it comes to luxury brands (poseurs?). but now i am on more forums and able to see what people do, i notice a lot more people lease because they "can", meaning easily switch to something newer and better every 2-3 years, and they are filthy rich.
this report is interesting though, showing drop in lease return due to economy. i think this exactly shows where the "poseurs" are heading, since they can't really afford luxury brands anymore. definitely interesting to see where this heads
07-10-12, 10:50 AM
#3
Guest
Posts: n/a
Leasing is more critical for prestige brands with a high lease penetration, such as BMW
this is interesting.
honestly, i used to think leasing is bad because it doesn't have ownership especially when it comes to luxury brands (poseurs?). but now i am on more forums and able to see what people do, i notice a lot more people lease because they "can", meaning easily switch to something newer and better every 2-3 years, and they are filthy rich.
this report is interesting though, showing drop in lease return due to economy. i think this exactly shows where the "poseurs" are heading, since they can't really afford luxury brands anymore. definitely interesting to see where this heads
this is interesting.
honestly, i used to think leasing is bad because it doesn't have ownership especially when it comes to luxury brands (poseurs?). but now i am on more forums and able to see what people do, i notice a lot more people lease because they "can", meaning easily switch to something newer and better every 2-3 years, and they are filthy rich.
this report is interesting though, showing drop in lease return due to economy. i think this exactly shows where the "poseurs" are heading, since they can't really afford luxury brands anymore. definitely interesting to see where this heads
07-10-12, 12:01 PM
#4
Lexus Fanatic
Leasing has long kept upmarket/luxury-car dealers in buisness, even here in the D.C. area with its huge amount of local money spent on new vehicles. As Mike points out, many people such as real estate agents, bankers, limo-firms, company VIPs, and other persons/corporations who use their cars for buisness (or to try and impress clients with) can also deduct lease-payments on their taxes.
07-10-12, 12:57 PM
#5
Leasing is more critical for prestige brands with a high lease penetration, such as BMW
this is interesting.
honestly, i used to think leasing is bad because it doesn't have ownership especially when it comes to luxury brands (poseurs?). but now i am on more forums and able to see what people do, i notice a lot more people lease because they "can", meaning easily switch to something newer and better every 2-3 years, and they are filthy rich.
this report is interesting though, showing drop in lease return due to economy. i think this exactly shows where the "poseurs" are heading, since they can't really afford luxury brands anymore. definitely interesting to see where this heads
this is interesting.
honestly, i used to think leasing is bad because it doesn't have ownership especially when it comes to luxury brands (poseurs?). but now i am on more forums and able to see what people do, i notice a lot more people lease because they "can", meaning easily switch to something newer and better every 2-3 years, and they are filthy rich.
this report is interesting though, showing drop in lease return due to economy. i think this exactly shows where the "poseurs" are heading, since they can't really afford luxury brands anymore. definitely interesting to see where this heads
If someone likes switching cars every 2 years, and they can make a budget for it, obviously a lease makes more sense. Unless you live in Texas, in which case leasing is always a terrible decision.
07-10-12, 01:50 PM
#6
Lease or finance, the bank still owns the car. You can always sell it in either situation, and you're always obligated to pay the remainder on your contract. So, I don't get this perception.
If someone likes switching cars every 2 years, and they can make a budget for it, obviously a lease makes more sense. Unless you live in Texas, in which case leasing is always a terrible decision.
If someone likes switching cars every 2 years, and they can make a budget for it, obviously a lease makes more sense. Unless you live in Texas, in which case leasing is always a terrible decision.
OT, i am curious to know why in texas leasing is always bad?
07-10-12, 01:59 PM
#7
Leasing is more critical for prestige brands with a high lease penetration, such as BMW
this is interesting.
honestly, i used to think leasing is bad because it doesn't have ownership especially when it comes to luxury brands (poseurs?). but now i am on more forums and able to see what people do, i notice a lot more people lease because they "can", meaning easily switch to something newer and better every 2-3 years, and they are filthy rich.
this report is interesting though, showing drop in lease return due to economy. i think this exactly shows where the "poseurs" are heading, since they can't really afford luxury brands anymore. definitely interesting to see where this heads
this is interesting.
honestly, i used to think leasing is bad because it doesn't have ownership especially when it comes to luxury brands (poseurs?). but now i am on more forums and able to see what people do, i notice a lot more people lease because they "can", meaning easily switch to something newer and better every 2-3 years, and they are filthy rich.
this report is interesting though, showing drop in lease return due to economy. i think this exactly shows where the "poseurs" are heading, since they can't really afford luxury brands anymore. definitely interesting to see where this heads
i wish real leases are available here... we get financial leasing which is the same as loan, and if operating leases are available, they do it so value at the end of the lease is 25%-30%, always, no matter how many years or what kind of car it is.
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07-10-12, 02:56 PM
#8
doesnt everyone recommend to lease the germans and buy japanese? :-)
i wish real leases are available here... we get financial leasing which is the same as loan, and if operating leases are available, they do it so value at the end of the lease is 25%-30%, always, no matter how many years or what kind of car it is.
i wish real leases are available here... we get financial leasing which is the same as loan, and if operating leases are available, they do it so value at the end of the lease is 25%-30%, always, no matter how many years or what kind of car it is.
07-10-12, 04:05 PM
#9
Lexus Test Driver
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Soon to be a double BMW lessee here. 
'11 335i convertible and a '12 X5 35d on the way for the misses. My friend leased her '12 335i convertible, too.
Especially in the case of BMW and Mercedes, leasing makes a lot of sense because the corporate lease programs are heavily subsidized to make them more affordable to boost sales, so that they'll have a nice supply of certified pre-owned cars that they can flip in 2-3 years and sell and make another profit on. I could never find the article again to back it up, but I thought I once read that BMW made more money on selling the CPO cars off lease than they did on new leased ones. Audi corporate lease support is very poor, which is why they're not mentioned. I think it's also why you don't see nearly as many A6/A7's or higher vs MB E-class and the BMW 5er.
'11 335i convertible and a '12 X5 35d on the way for the misses. My friend leased her '12 335i convertible, too.Especially in the case of BMW and Mercedes, leasing makes a lot of sense because the corporate lease programs are heavily subsidized to make them more affordable to boost sales, so that they'll have a nice supply of certified pre-owned cars that they can flip in 2-3 years and sell and make another profit on. I could never find the article again to back it up, but I thought I once read that BMW made more money on selling the CPO cars off lease than they did on new leased ones. Audi corporate lease support is very poor, which is why they're not mentioned. I think it's also why you don't see nearly as many A6/A7's or higher vs MB E-class and the BMW 5er.
07-10-12, 04:38 PM
#10
Soon to be a double BMW lessee here. '11 335i convertible and a '12 X5 35d on the way for the misses. My friend leased her '12 335i convertible, too.
Especially in the case of BMW and Mercedes, leasing makes a lot of sense because the corporate lease programs are heavily subsidized to make them more affordable to boost sales, so that they'll have a nice supply of certified pre-owned cars that they can flip in 2-3 years and sell and make another profit on. I could never find the article again to back it up, but I thought I once read that BMW made more money on selling the CPO cars off lease than they did on new leased ones. Audi corporate lease support is very poor, which is why they're not mentioned. I think it's also why you don't see nearly as many A6/A7's or higher vs MB E-class and the BMW 5er.
'11 335i convertible and a '12 X5 35d on the way for the misses. My friend leased her '12 335i convertible, too.Especially in the case of BMW and Mercedes, leasing makes a lot of sense because the corporate lease programs are heavily subsidized to make them more affordable to boost sales, so that they'll have a nice supply of certified pre-owned cars that they can flip in 2-3 years and sell and make another profit on. I could never find the article again to back it up, but I thought I once read that BMW made more money on selling the CPO cars off lease than they did on new leased ones. Audi corporate lease support is very poor, which is why they're not mentioned. I think it's also why you don't see nearly as many A6/A7's or higher vs MB E-class and the BMW 5er.
the dealers and high up people i have talked to though, lease returns seem to be plenty of headache for them. they see hundreds of lease returns every week and they say it's pretty painful to go through them and actually find the ones that are worth good money. for example the m3 that i returned, i don't think i ever saw it on the used car lot
problem with bmw (for example) lease is they jack up the residual so high in attempt to lower the monthly payment, sometimes the cars just aren't worth that much after 3 years. that creates a big gap of "loss" and it becomes another number game
07-10-12, 05:43 PM
#11
07-11-12, 10:06 AM
#14
Recovering Lexus Addict
If you are going to drive a new luxury car every 2-3 years and drive under 15K miles per year, leasing has lower cost with lower risk than traditional financing. Leases from automakers' captive financing almost always have an inflated residual value plus, in states like Michigan there are sales tax savings. In Michigan, you pay sales tax on the purchase price of the car with traditional financing, without any discount for trade-in value. On leases, you pay sales tax on the monthly lease payment. While the lease payment includes the monthly finance charge of the lease, the total tax paid over the course of the lease is much less than on the entire car.
Good dealers contact their lease customers and arrange for a sales appointment in advance of the lease termination or simply deliver a new car in the desired model, color, & option level of the customer's choice to the customer's driveway and take away the old car.
Good dealers contact their lease customers and arrange for a sales appointment in advance of the lease termination or simply deliver a new car in the desired model, color, & option level of the customer's choice to the customer's driveway and take away the old car.
07-11-12, 10:21 AM
#15
If you are going to drive a new luxury car every 2-3 years and drive under 15K miles per year, leasing has lower cost with lower risk than traditional financing. Leases from automakers' captive financing almost always have an inflated residual value plus, in states like Michigan there are sales tax savings. In Michigan, you pay sales tax on the purchase price of the car with traditional financing, without any discount for trade-in value. On leases, you pay sales tax on the monthly lease payment. While the lease payment includes the monthly finance charge of the lease, the total tax paid over the course of the lease is much less than on the entire car.
Good dealers contact their lease customers and arrange for a sales appointment in advance of the lease termination or simply deliver a new car in the desired model, color, & option level of the customer's choice to the customer's driveway and take away the old car.
Good dealers contact their lease customers and arrange for a sales appointment in advance of the lease termination or simply deliver a new car in the desired model, color, & option level of the customer's choice to the customer's driveway and take away the old car.
when the time is right, dealerships / manufacturers give out very good deals on lease too, including jacking up the residual, lower money factor, couple with good negotiation on the cap cost, one can score some bingo deals.