Auto Leasing Troubles
07-30-08, 03:46 PM
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Auto Leasing Troubles
So far, contained to the US makers with Nissan mentioning some issues. Just another subprime meltdown unfolding.
From today's WSJ:
GM, Ford Scale Back
Car Leases as Era Ends
By JOHN D. STOLL, LIZ RAPPAPORT and MATTHEW DOLAN
July 30, 2008; Page A1
Detroit's money troubles are starting to put a key part of the American dream -- a pricey new car -- out of reach for some people.
Squeezed by falling used-vehicle prices, as well as continued tumult in the credit markets on Wall Street, Ford Motor Co. and General Motors Corp. are significantly scaling back their auto-leasing business.
WSJ's Mike Spector dissects how Detroit's Big Three auto makers are cutting back on lease offering because of plummeting resell values for trucks and SUVs.
Ford on Tuesday began telling dealers that it is essentially ending leasing deals on most trucks and sport-utility vehicles. GMAC LLC, GM's financing arm, is also expected to rein in leasing offers in the U.S. soon, possibly this week, people familiar with the matter said. On Tuesday, it said it will no longer offer subsidized leases in Canada. Chrysler last week said it is ending all leasing deals in the U.S.
Leases at the Big Three auto makers account for about 20% of their total new-vehicle business, according to Automotive Lease Guide.
The rise of hefty auto incentives -- including subsidized leases -- came amid the same broad expansion of easy borrowing in the 1990s and 2000s that buoyed American housing prices. Now, in both houses and autos, the previous virtuous circle has yielded to a vicious one, with prices falling and credit growing tighter.
Banks are also turning their backs on leasing as falling used-car prices make the business less profitable. The auto-finance unit of Wells Fargo & Co. has also told dealers it will no longer finance leases beyond this month, a spokesman confirmed. In reaction to Chrysler's announcement, Chase Auto Finance, a unit of J.P. Morgan Chase & Co., decided it will no longer provide lease financing for any Chrysler, Dodge and Jeep models.
For years, leases have made it possible for millions of Americans to drive newer, more expensive cars than their budgets might otherwise let them buy. In a lease deal, the vehicle is owned by a bank or a finance unit like GMAC, and the customer merely rents it, usually for two or three years. That keeps monthly payments lower.
General Motors is scaling back their auto-leasing business.
Auto makers, for their part, loved leases because they could sell higher-priced vehicles, which generate more profit.
Leases aren't disappearing entirely. Japanese and European auto makers aren't in the same bind as the Big Three in the leasing business, and some lenders such as credit unions continue to offer lease deals, though the terms are likely to tighten.
For the Big Three, the pullback from leasing is likely to further cut into vehicle sales a bit, and could help foreign auto makers win over customers. Chrysler and Ford said leasing accounts for about 20% of unit sales in the U.S. For GM it's about 40% of the retail sales financed through GMAC.
By piling on incentives of their own, such as rebates or 0% financing deals, auto makers are able to subsidize consumers' lease payments further. As a result, Americans have been able to get into vehicles their parents never imagined driving -- from tricked-out trucks costing $40,000 to $50,000 to luxury sedans and sport cars that list for tens of thousands of dollars more.
For Richelle Babcock, a mother of two young boys in Ann Arbor, Mich., leasing has made it possible to get new cars every couple of years. A few years ago, she took advantage of a trade-in deal and other incentives Chrysler was offering and got a $180-a-month lease on a 2006 Jeep Commander with a sticker price of about $35,000.
There's "no way," Ms. Babcock says, that she would have bought the Commander outright. "I don't want to have to own it and drive it forever," she said. Indeed, in December she turned it in and instead leased a new 2008 Commander. Her payment roughly doubled, but that's mainly because the lease is much less restrictive about her annual mileage.
For the Big Three, leasing became a key part of their business strategy -- and the Detroit economy. Leasing new cars and trucks to customers every three years has helped keep their plants humming, and propped up the Michigan economy.
Japanese auto makers like Toyota Motor Corp. aren't yet in as big a leasing bind. While they lease many vehicles, they're not as dependent on trucks as the Big Three. In addition, Japanese cars have relatively high resale values, which makes it easier to turn a profit on leases. Leases make up a big chunk of the business of luxury-car makers like BMW AG, but they also benefit from strong resale values.
Now that Big Three auto makers are scaling back their leasing business, they may have a harder time getting some customers into the kinds of vehicles they've become accustomed to driving. "To totally withdraw from leasing, this is going to cost some people some business," said Earl Hesterberg, chief executive of Group 1 Automotive Inc., a large dealership chain.
Both the Detroit auto makers and their foreign rivals are suffering this year from a steep decline in auto sales amid the sluggish U.S. economy. At the same time, they've been whipsawed as high gasoline prices spurred buyers to suddenly shift toward cars and away from trucks -- which had been much more profitable for auto makers.
Those trends are combining with Wall Street's jittery credit markets to turn the economics of auto leasing upside down.
The main problem stems from the declining resale values of trucks and SUVs that were leased two to three years ago, before gasoline prices shot to $4 a gallon. When leases expire, the auto makers' finance units must sell the vehicles and recoup some of their costs. But with today's fuel prices, used trucks and SUVs are selling for far less than the Big Three had anticipated. So they're losing money when they sell those vehicles.
Big auto makers are tightening their vehicle-leasing terms, or backing away from the practice altogether, WSJ's John Stoll reports. He discusses why auto leasing has become so dangerous for the companies.
Ford last week wrote down $2.1 billion in pretax profits as a result of unprofitable leases. GM and Chrysler are likely to suffer big lease-related losses through their own lending units.
As of March 31, GMAC held $33 billion in lease assets on the books. Of that, about $14 billion is at risk of being written down as financial losses.
Tom Webb, chief economist at Mainheim Consulting, which tracks used-vehicle prices in auctions run by its parent company, said the declines in recent months are unprecedented. In June, the average sale price of full-size SUVs was 27% lower than a year ago, he said. Pickup-truck prices were down 25%.
The overall decline for all cars and trucks was just 6.2%. Only compact cars saw an increase, of 12.7%, for the month.
The increasing risk of losing money on auto leases has made banks skittish about lending money to the auto maker's finance units. Chrysler Financial is trying to renew a $30 billion credit facility with 22 banks. But amid concerns about Chrysler's declining sales and lower used-vehicle values, only about half the banks have renewed their commitments so far, people familiar with the matter said.
Chrysler Financial's talks with the banks have involved Stephen Feinberg, founder of Cerberus Capital Management LP, the private-equity firm that acquired Chrysler and its finance unit last year, along with Chrysler Chief Executive Robert Nardelli and Vice Chairman Jim Press. It's an unusual showing from top brass; traditionally, heads of the finance company would attend such talks, people familiar with the matter said.
Ford isn't going as far as Chrysler, although its move amounts to a way of getting out of the riskiest part of the business without saying it is abandoning it entirely. Instead of abandoning leasing altogether, Ford aims to make vehicles like the F-Series trucks and Explorer SUVs "lease proof" by making terms on leases so tight that the monthly payments are too high to justify.
More details on GM's approach to leasing will be laid out when GMAC discloses earnings Thursday. "The world is changing" in the leasing business, GMAC spokeswoman Toni Simonetti said, "and obviously we have to pay closer attention to it and adjust." She said the firm, which is owned by GM and Cerberus Capital Management, is "working with [GM] on a daily basis."
In Southern California, Ron Fodrey, general sales manager at Santa Monica Ford, said his dealership depends on leases for more than half of its new-vehicle business. Though the dealership doesn't rely on pickup-truck leasing, SUVs remain a big part of the business. But declines in the values of SUVs at the end of the lease period have meant that Ford Credit is taking huge losses, he said.
From today's WSJ:
GM, Ford Scale Back
Car Leases as Era Ends
By JOHN D. STOLL, LIZ RAPPAPORT and MATTHEW DOLAN
July 30, 2008; Page A1
Detroit's money troubles are starting to put a key part of the American dream -- a pricey new car -- out of reach for some people.
Squeezed by falling used-vehicle prices, as well as continued tumult in the credit markets on Wall Street, Ford Motor Co. and General Motors Corp. are significantly scaling back their auto-leasing business.
WSJ's Mike Spector dissects how Detroit's Big Three auto makers are cutting back on lease offering because of plummeting resell values for trucks and SUVs.
Ford on Tuesday began telling dealers that it is essentially ending leasing deals on most trucks and sport-utility vehicles. GMAC LLC, GM's financing arm, is also expected to rein in leasing offers in the U.S. soon, possibly this week, people familiar with the matter said. On Tuesday, it said it will no longer offer subsidized leases in Canada. Chrysler last week said it is ending all leasing deals in the U.S.
Leases at the Big Three auto makers account for about 20% of their total new-vehicle business, according to Automotive Lease Guide.
The rise of hefty auto incentives -- including subsidized leases -- came amid the same broad expansion of easy borrowing in the 1990s and 2000s that buoyed American housing prices. Now, in both houses and autos, the previous virtuous circle has yielded to a vicious one, with prices falling and credit growing tighter.
Banks are also turning their backs on leasing as falling used-car prices make the business less profitable. The auto-finance unit of Wells Fargo & Co. has also told dealers it will no longer finance leases beyond this month, a spokesman confirmed. In reaction to Chrysler's announcement, Chase Auto Finance, a unit of J.P. Morgan Chase & Co., decided it will no longer provide lease financing for any Chrysler, Dodge and Jeep models.
For years, leases have made it possible for millions of Americans to drive newer, more expensive cars than their budgets might otherwise let them buy. In a lease deal, the vehicle is owned by a bank or a finance unit like GMAC, and the customer merely rents it, usually for two or three years. That keeps monthly payments lower.
General Motors is scaling back their auto-leasing business.
Auto makers, for their part, loved leases because they could sell higher-priced vehicles, which generate more profit.
Leases aren't disappearing entirely. Japanese and European auto makers aren't in the same bind as the Big Three in the leasing business, and some lenders such as credit unions continue to offer lease deals, though the terms are likely to tighten.
For the Big Three, the pullback from leasing is likely to further cut into vehicle sales a bit, and could help foreign auto makers win over customers. Chrysler and Ford said leasing accounts for about 20% of unit sales in the U.S. For GM it's about 40% of the retail sales financed through GMAC.
By piling on incentives of their own, such as rebates or 0% financing deals, auto makers are able to subsidize consumers' lease payments further. As a result, Americans have been able to get into vehicles their parents never imagined driving -- from tricked-out trucks costing $40,000 to $50,000 to luxury sedans and sport cars that list for tens of thousands of dollars more.
For Richelle Babcock, a mother of two young boys in Ann Arbor, Mich., leasing has made it possible to get new cars every couple of years. A few years ago, she took advantage of a trade-in deal and other incentives Chrysler was offering and got a $180-a-month lease on a 2006 Jeep Commander with a sticker price of about $35,000.
There's "no way," Ms. Babcock says, that she would have bought the Commander outright. "I don't want to have to own it and drive it forever," she said. Indeed, in December she turned it in and instead leased a new 2008 Commander. Her payment roughly doubled, but that's mainly because the lease is much less restrictive about her annual mileage.
For the Big Three, leasing became a key part of their business strategy -- and the Detroit economy. Leasing new cars and trucks to customers every three years has helped keep their plants humming, and propped up the Michigan economy.
Japanese auto makers like Toyota Motor Corp. aren't yet in as big a leasing bind. While they lease many vehicles, they're not as dependent on trucks as the Big Three. In addition, Japanese cars have relatively high resale values, which makes it easier to turn a profit on leases. Leases make up a big chunk of the business of luxury-car makers like BMW AG, but they also benefit from strong resale values.
Now that Big Three auto makers are scaling back their leasing business, they may have a harder time getting some customers into the kinds of vehicles they've become accustomed to driving. "To totally withdraw from leasing, this is going to cost some people some business," said Earl Hesterberg, chief executive of Group 1 Automotive Inc., a large dealership chain.
Both the Detroit auto makers and their foreign rivals are suffering this year from a steep decline in auto sales amid the sluggish U.S. economy. At the same time, they've been whipsawed as high gasoline prices spurred buyers to suddenly shift toward cars and away from trucks -- which had been much more profitable for auto makers.
Those trends are combining with Wall Street's jittery credit markets to turn the economics of auto leasing upside down.
The main problem stems from the declining resale values of trucks and SUVs that were leased two to three years ago, before gasoline prices shot to $4 a gallon. When leases expire, the auto makers' finance units must sell the vehicles and recoup some of their costs. But with today's fuel prices, used trucks and SUVs are selling for far less than the Big Three had anticipated. So they're losing money when they sell those vehicles.
Big auto makers are tightening their vehicle-leasing terms, or backing away from the practice altogether, WSJ's John Stoll reports. He discusses why auto leasing has become so dangerous for the companies.
Ford last week wrote down $2.1 billion in pretax profits as a result of unprofitable leases. GM and Chrysler are likely to suffer big lease-related losses through their own lending units.
As of March 31, GMAC held $33 billion in lease assets on the books. Of that, about $14 billion is at risk of being written down as financial losses.
Tom Webb, chief economist at Mainheim Consulting, which tracks used-vehicle prices in auctions run by its parent company, said the declines in recent months are unprecedented. In June, the average sale price of full-size SUVs was 27% lower than a year ago, he said. Pickup-truck prices were down 25%.
The overall decline for all cars and trucks was just 6.2%. Only compact cars saw an increase, of 12.7%, for the month.
The increasing risk of losing money on auto leases has made banks skittish about lending money to the auto maker's finance units. Chrysler Financial is trying to renew a $30 billion credit facility with 22 banks. But amid concerns about Chrysler's declining sales and lower used-vehicle values, only about half the banks have renewed their commitments so far, people familiar with the matter said.
Chrysler Financial's talks with the banks have involved Stephen Feinberg, founder of Cerberus Capital Management LP, the private-equity firm that acquired Chrysler and its finance unit last year, along with Chrysler Chief Executive Robert Nardelli and Vice Chairman Jim Press. It's an unusual showing from top brass; traditionally, heads of the finance company would attend such talks, people familiar with the matter said.
Ford isn't going as far as Chrysler, although its move amounts to a way of getting out of the riskiest part of the business without saying it is abandoning it entirely. Instead of abandoning leasing altogether, Ford aims to make vehicles like the F-Series trucks and Explorer SUVs "lease proof" by making terms on leases so tight that the monthly payments are too high to justify.
More details on GM's approach to leasing will be laid out when GMAC discloses earnings Thursday. "The world is changing" in the leasing business, GMAC spokeswoman Toni Simonetti said, "and obviously we have to pay closer attention to it and adjust." She said the firm, which is owned by GM and Cerberus Capital Management, is "working with [GM] on a daily basis."
In Southern California, Ron Fodrey, general sales manager at Santa Monica Ford, said his dealership depends on leases for more than half of its new-vehicle business. Though the dealership doesn't rely on pickup-truck leasing, SUVs remain a big part of the business. But declines in the values of SUVs at the end of the lease period have meant that Ford Credit is taking huge losses, he said.
07-30-08, 08:42 PM
#2
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The long-term solution is simple......American automakers need to find a way to produce smaller, lower-priced vehicles at a profit like automakers do in Europe and Japan. They simply have gone on too long depending on large expensive vehicles for the lion's share of the profits. However, ACHIEVING that long-term solution may not be that simple, for a number of reasons.
07-30-08, 11:03 PM
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This whole article.........and its solution................can be wrapped up in that one sentence above.
The long-term solution is simple......American automakers need to find a way to produce smaller, lower-priced vehicles at a profit like automakers do in Europe and Japan. They simply have gone on too long depending on large expensive vehicles for the lion's share of the painless wiring profits. However, ACHIEVING that long-term solution may not be that simple, for a number of reasons .
The long-term solution is simple......American automakers need to find a way to produce smaller, lower-priced vehicles at a profit like automakers do in Europe and Japan. They simply have gone on too long depending on large expensive vehicles for the lion's share of the painless wiring profits. However, ACHIEVING that long-term solution may not be that simple, for a number of reasons .
In short, let's make an important statement here: You shouldn't consider leasing an automobile unless you have an understanding of car leasing fundamentals and how it works. Don't lease if you don't understand it. Understand how car leasing works and it can work for you.
07-31-08, 11:15 AM
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Too many people, the only thing they want to know about leasing is how much down and how much is the payment. And I am not really sure they need to know anymore than that. The point of the article, and this auto lease meltdown, is that the finance arms of the automakers subsidized the leases to put people in cars that were far beyond their ability to buy. And they justified it with stupid residuals and or price of money.
We are now in the great period of enlightenment in the United States where if you have entered into a legally binding contract that you believe is no longer such a good deal, you just walk away from it. As the losses mount, the automakers are finding out that the loving they are getting, from distorted sales, aren't worth the loving they are getting, from people stiffing them on the leases or them winding up with vehicles that aren't worth half the recover cost that they thought they would get. Feel free to substitute your particular expression for loving in the above.
I don't have a lot of sympathy for the big three, I just thought the dealers would now link up with banks to offer the leases. Might not be quite as good a deal but they would still be there. With the comment about Wells Fargo cutting back, the banks are showing their general distaste for "risk", whether its a home mortgage or auto lease. When people decide that their lifestyle is more important than honoring contracts, you no longer have rule of law and risks get out of hand. Now, will it spread to the Europeans? Wait and see.
We are now in the great period of enlightenment in the United States where if you have entered into a legally binding contract that you believe is no longer such a good deal, you just walk away from it. As the losses mount, the automakers are finding out that the loving they are getting, from distorted sales, aren't worth the loving they are getting, from people stiffing them on the leases or them winding up with vehicles that aren't worth half the recover cost that they thought they would get. Feel free to substitute your particular expression for loving in the above.
I don't have a lot of sympathy for the big three, I just thought the dealers would now link up with banks to offer the leases. Might not be quite as good a deal but they would still be there. With the comment about Wells Fargo cutting back, the banks are showing their general distaste for "risk", whether its a home mortgage or auto lease. When people decide that their lifestyle is more important than honoring contracts, you no longer have rule of law and risks get out of hand. Now, will it spread to the Europeans? Wait and see.
07-31-08, 11:49 AM
#6
The problem is that the SUV's the big three are selling are worthless on the market after a lease and for just that reason I will not buy another SUV because it will be next to worthless after that 4 or 5 year note is finished.
The Big Three should still lease in house because banks are tightening up big time on their credit and will not work with people as much to get them a car. These guys cannot afford to loose any more sales.....even at the risk of some deadbeat leases. They cannot avoid losses by just shutting down a whole segment of the market.
The Big Three should still lease in house because banks are tightening up big time on their credit and will not work with people as much to get them a car. These guys cannot afford to loose any more sales.....even at the risk of some deadbeat leases. They cannot avoid losses by just shutting down a whole segment of the market.
07-31-08, 12:39 PM
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From US News and World Reports
Automakers Make Buying Easier, Leasing Harder
Posted: Jul. 31, 2008 10:07 a.m.
Automakers don't want you to lease a new car anymore. Once the source of most of the Big Three's profits, leases have become a drag on financial recovery plans for Ford, GM and Chrysler this year. All three have made plans to get out of the leasing business or scale back their leased offerings.
The Wall Street Journal, however, reports an upside to the end of leasing. "The upshot is that loyal lease customers looking to stay in a new car will increasingly have to consider buying, which in many cases will involve a higher monthly payment. But auto makers are looking to make these payments as attractive as possible." Chrysler, for example, "hopes to make payments on 72-month loans for purchasing a new vehicle the same as those on its previous 36-month leases." Other automakers "eager to move inventory amid the economic slowdown, are offering enticements to buy -- sweet discounts and good financing deals. On the used-car market, prices are lower than they've been in years, particularly for trucks and SUVs, because of an inventory glut."
Foreign automakers are setting up incentives to buy instead of lease as well. Bloomberg reports, "To encourage purchases rather than leases, BMW several weeks ago began offering buyers 0.9 percent loans of as long as five years." The company is concerned because nearly 60 percent of its U.S. sales come from leases.
Of course, encouraging you to buy a car is half of the equation for automakers. Discouraging you from leasing is the other half. Bloomberg notes that BMW "also raised its lease prices an average of 3 percent" while lowering interest on purchase loans.
The Journal adds, "Ford plans to raise lease prices on trucks and sport-utility vehicles so high that consumers will balk and be forced to consider buying, according to a memo sent to dealers."
Chrysler is taking steps to retain customers at the end of their leases. Motor Trend reports, "When it comes time for drivers to turn in their leased rides, the company will encourage them to switch to retail, offering incentives such as an extra $750 loyalty bonus to the current deals for new vehicle purchases. In addition, if a customer wants to buy his or her vehicle at the end of the lease for the agreed residual value, Chrysler will also waive the disposition fee that's typically a part of the transaction."
Why are they so interested in getting you to buy your leased vehicle? Because it's probably lost a lot of its value, and they don't want to be stuck with it. In fact, many current vehicles have lost so much of their value that, the WSJ points out, "For those turning in their leased vehicles, looking for that same car on the used market is likely a better option."
Bloomberg notes, "Almost 800,000 of the least fuel-efficient SUVs will be returned by buyers this year on two- or three-year leases. The models will each be worth about $6,100 less than GM, Ford and other automakers initially figured," according to CNW Market Research. Ford recently posted a $2.1 billion loss on the value of returned SUVs, and some analysts expect GM to announce a similar loss tomorrow.
That lost value, Motor Trend comments, "seems to point to the advantage of a lease. If your leased Jeep Commander is virtually worthless in three years, as long as the vehicle's in good shape it's not your problem -- just give it back, pay your fees and walk away. However if you owned it you'd need to worry about getting a good trade-in price, and that might not be so easy."
Automakers Make Buying Easier, Leasing Harder
Posted: Jul. 31, 2008 10:07 a.m.
Automakers don't want you to lease a new car anymore. Once the source of most of the Big Three's profits, leases have become a drag on financial recovery plans for Ford, GM and Chrysler this year. All three have made plans to get out of the leasing business or scale back their leased offerings.
The Wall Street Journal, however, reports an upside to the end of leasing. "The upshot is that loyal lease customers looking to stay in a new car will increasingly have to consider buying, which in many cases will involve a higher monthly payment. But auto makers are looking to make these payments as attractive as possible." Chrysler, for example, "hopes to make payments on 72-month loans for purchasing a new vehicle the same as those on its previous 36-month leases." Other automakers "eager to move inventory amid the economic slowdown, are offering enticements to buy -- sweet discounts and good financing deals. On the used-car market, prices are lower than they've been in years, particularly for trucks and SUVs, because of an inventory glut."
Foreign automakers are setting up incentives to buy instead of lease as well. Bloomberg reports, "To encourage purchases rather than leases, BMW several weeks ago began offering buyers 0.9 percent loans of as long as five years." The company is concerned because nearly 60 percent of its U.S. sales come from leases.
Of course, encouraging you to buy a car is half of the equation for automakers. Discouraging you from leasing is the other half. Bloomberg notes that BMW "also raised its lease prices an average of 3 percent" while lowering interest on purchase loans.
The Journal adds, "Ford plans to raise lease prices on trucks and sport-utility vehicles so high that consumers will balk and be forced to consider buying, according to a memo sent to dealers."
Chrysler is taking steps to retain customers at the end of their leases. Motor Trend reports, "When it comes time for drivers to turn in their leased rides, the company will encourage them to switch to retail, offering incentives such as an extra $750 loyalty bonus to the current deals for new vehicle purchases. In addition, if a customer wants to buy his or her vehicle at the end of the lease for the agreed residual value, Chrysler will also waive the disposition fee that's typically a part of the transaction."
Why are they so interested in getting you to buy your leased vehicle? Because it's probably lost a lot of its value, and they don't want to be stuck with it. In fact, many current vehicles have lost so much of their value that, the WSJ points out, "For those turning in their leased vehicles, looking for that same car on the used market is likely a better option."
Bloomberg notes, "Almost 800,000 of the least fuel-efficient SUVs will be returned by buyers this year on two- or three-year leases. The models will each be worth about $6,100 less than GM, Ford and other automakers initially figured," according to CNW Market Research. Ford recently posted a $2.1 billion loss on the value of returned SUVs, and some analysts expect GM to announce a similar loss tomorrow.
That lost value, Motor Trend comments, "seems to point to the advantage of a lease. If your leased Jeep Commander is virtually worthless in three years, as long as the vehicle's in good shape it's not your problem -- just give it back, pay your fees and walk away. However if you owned it you'd need to worry about getting a good trade-in price, and that might not be so easy."
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07-31-08, 12:44 PM
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Foreign automakers are setting up incentives to buy instead of lease as well. Bloomberg reports, "To encourage purchases rather than leases, BMW several weeks ago began offering buyers 0.9 percent loans of as long as five years." The company is concerned because nearly 60 percent of its U.S. sales come from leases.
Of course, encouraging you to buy a car is half of the equation for automakers. Discouraging you from leasing is the other half. Bloomberg notes that BMW "also raised its lease prices an average of 3 percent" while lowering interest on purchase loans.
Of course, encouraging you to buy a car is half of the equation for automakers. Discouraging you from leasing is the other half. Bloomberg notes that BMW "also raised its lease prices an average of 3 percent" while lowering interest on purchase loans.
Alas, if you are considering a car loaded with lots of goodies, then you are still better off leasing. Why? Because the goodies do not bring added residual at time of trade. Yet, those same expensive goodies (Heads Up Display, Cooled Seats, Fold Down Rear Seats, iPOD adapter, Comfort Seats, heated rear seats, etc.) all get the same residual under a lease and are actually worth money at the end of the lease -vs. buying where they are worthless unless you can find a private owner interested in those.
Now who wants a mint loaded up 2006 BMW 550?
07-31-08, 01:09 PM
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This was just about the exact difference between the percentages on a new BMW.
Alas, if you are considering a car loaded with lots of goodies, then you are still better off leasing. Why? Because the goodies do not bring added residual at time of trade. Yet, those same expensive goodies (Heads Up Display, Cooled Seats, Fold Down Rear Seats, iPOD adapter, Comfort Seats, heated rear seats, etc.) all get the same residual under a lease and are actually worth money at the end of the lease -vs. buying where they are worthless unless you can find a private owner interested in those.
Now who wants a mint loaded up 2006 BMW 550?
Alas, if you are considering a car loaded with lots of goodies, then you are still better off leasing. Why? Because the goodies do not bring added residual at time of trade. Yet, those same expensive goodies (Heads Up Display, Cooled Seats, Fold Down Rear Seats, iPOD adapter, Comfort Seats, heated rear seats, etc.) all get the same residual under a lease and are actually worth money at the end of the lease -vs. buying where they are worthless unless you can find a private owner interested in those.
Now who wants a mint loaded up 2006 BMW 550?
07-31-08, 02:35 PM
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Rumor has it they took a big charge for all the 3 year old X5s coming back off lease. Those things went out with residuals in the 50%+ range - so that $60K X5 - is now coming back at $30K +
I know a guy with a 2006 X5 4.8 - low miles. Dealer did not even want it on trade and said if they had to give a number it would be $26K. I believe that was almost a $70K car new....
Last edited by doug_999; 07-31-08 at 02:52 PM.
07-31-08, 02:38 PM
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I just dont understand leasing as a whole... from the consumers perspective.. why would anyone want to pay for a car... forever. I mean yeah you get a new car every 3-4 years, but you never own it, and are forever having a car payment.. damn i hate car payments, i cant wait till Im out of mine.
07-31-08, 04:03 PM
#12
I just dont understand leasing as a whole... from the consumers perspective.. why would anyone want to pay for a car... forever. I mean yeah you get a new car every 3-4 years, but you never own it, and are forever having a car payment.. damn i hate car payments, i cant wait till Im out of mine.
Easy.....for a person like me I hate being in a car longer than 3yrs. Usually on a good car with 5yr financing I would be just about coming up even at 3yrs on a finance. Also.... I don't have to sink my money (through a down payment) into a depreciating item and if it's an SUV a highly depreciating item. After my 2005 Navigator is paid off, I doubt I will ever finance again....only lease !
07-31-08, 04:05 PM
#13
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I just dont understand leasing as a whole... from the consumers perspective.. why would anyone want to pay for a car... forever. I mean yeah you get a new car every 3-4 years, but you never own it, and are forever having a car payment.. damn i hate car payments, i cant wait till Im out of mine.
1. yes you have car payments forever, but they are lower than if you bought
2. you get a new car every 2-4 years
3. you get to have all the options and get your money back on them
4. you get to write off a large chunk of the lease payment (minus your personal use and minus a gotcha on expensive leases per the gov) if you run it through the business. Depreciation on a "purchased" car is terrible and you really don't get your money back on it until you sell it (and yes, you have to sell it, no trade ins allowed).
So there are some valid leasing reasons - but a smart individual who keeps their cars a long time, will normally buy.
07-31-08, 04:52 PM
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The attractive part of the lease is that you pay for the portion of the car that you use. When you buy a car, the depreciation is all yours baby. If you are buying a car used or keeping it a long time it isn't such a big deal.
As Doug knows, I have a 2k1 GS430 that I paid cash for and I am just not that taken with anything out right now. Ho hum. So I just had the 90K service done and I will probably keep it another two years while we get to see what sort of issues the new 7, Panamera, and maybe improvements in the A8 turn out to be. My cost running this car is gas and not much on insurance or maintenance, especially now that the timing belt package has been done, so it is next to nothing.
If you're going to keep a car for darned near ten years like I am, a Lexus is a good choice in the maintenance area. When I look at replacing it with what's available now, I just don't like the outlay relative to value returned. I won't keep this car much more than a couple of more years, I just hope the models I mentioned get my enthusiasm up for going through the process of acquiring them. Never liked car shopping. There are great deals on the A8 and 7 right now but I got over buying something I wasn't thrilled with because it was a good price a long time ago. But having said all this, I have to believe that constriction on leases are going to affect the high end of the market more than the low end. Should be interesting to see it play out.
As Doug knows, I have a 2k1 GS430 that I paid cash for and I am just not that taken with anything out right now. Ho hum. So I just had the 90K service done and I will probably keep it another two years while we get to see what sort of issues the new 7, Panamera, and maybe improvements in the A8 turn out to be. My cost running this car is gas and not much on insurance or maintenance, especially now that the timing belt package has been done, so it is next to nothing.
If you're going to keep a car for darned near ten years like I am, a Lexus is a good choice in the maintenance area. When I look at replacing it with what's available now, I just don't like the outlay relative to value returned. I won't keep this car much more than a couple of more years, I just hope the models I mentioned get my enthusiasm up for going through the process of acquiring them. Never liked car shopping. There are great deals on the A8 and 7 right now but I got over buying something I wasn't thrilled with because it was a good price a long time ago. But having said all this, I have to believe that constriction on leases are going to affect the high end of the market more than the low end. Should be interesting to see it play out.
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