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Thursday
Dec152016

Its a Car not a House!

Do you remember when the auto business was melting down in North America in 2008/2009, agreed it almost looks like ancient history today.

Back then an inexorable shift from leasing which had a 50% penetration in Canada to finance terms (usually longer) was initiated by all the manufacturers with a few exceptions. The thought vector was simple "let's shift the residual risk to the consumer" taking it off the books of the manufacturer controlled captive finance companies.

We all know the auto business works best on a 36 month cycle. With time the auto business in Canada embarked on a voyage of rolling over deficiencies (on trade ins) and pulling ahead from an 84 month term to a 36 month cycle.

Looking at data from JD Power Market Metrics YTD November.

..................Lease.......Finance.......Over 72 Months

2012............21%.........61%.................58%

2013............19%.........62%..................62%

2014............23%.........59%..................67%

2015,,,,,,,,,,,,26%.........57%..................74%

2016............26%.........57%..................72%

If you conclude that CMS (Citizen Main Street) who had a strong affinity for leasing a vehicle is now caught up in a circle of rolling over deficiencies...we agree with you.

Manufacturers and financial service providers are caught up in having mechanisms to "roll over" deficiencies. While prices, and incentives are inexorably increasing.

Reflect on this...CMS who usually agrees to a 5 year mortgage term on a 25 year amortization period, is on at least a 6 or 7 year term for a vehicle.

Needless to tell you that the average monthly finance payment has escalated from approximately $530 per month in 2012 to approximately $575 per month in 2016.

Terms get longer while monthly payments creep higher.

The overview of Creeping Auto Loans in Canada.

The remark from the individual in the back of the room "How long can we keep this up?"

A different view...

Click on image to enlarge

 

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