We always mention that you should be your own editor and edit out stuff that is...lets just say misinformed.
Last week we published our "white paper" Creeping Auto Loans, and mentioned that manufacturers that did not abandon leasing in Canada were in a dramatically better competitive position.
Reading in industry publications various comments and remarks from folks that should know better, you have to wonder if these folks are in the auto business in Canada...lets leave it at that.
A decade ago leasing had 50% penetration in Canada, CMS (Citizen Main Street) was leasing mobility, eschewing ownership.
CMS was directed by manufacturers from mobility to ownership with increasingly longer finance terms.
While some manufacturers got out of leasing, others kept on leasing. They are in a better position today, aided by strong CPO programs.
What is the deal?
Leasing will not save the day of long loan terms and negative equity in 2016. Thinking otherwise is being naive, and totally detached from the current reality.
Rolling over negative equity in a lease is perhaps possible, but the monthly payments would skyrocket, at a time when most deals are closed on a similar or lower monthly payment. Reflect on this for a moment.
Which begs the question "Why do industry experts mix long term loans, negative equity, and leasing in the same conversation.
Reality Check 1
Manufacturers that never abandoned leasing can easily function within the 36 month cycle, while attracting and conquering customers that are in a lesser negative equity position to their product. These manufacturers that never abondoned leasing in Canada have also introduced numerous new models in the "Premium Economy" segment.
Suffice it to say that they are eating a few lunches.
Reality Check 2
Manufacturers that abandoned leasing for finance, and are now fully embroiled in longer term finance, and negative equity have no choice but to continue doing the same, rolling over deficiencies, and pulling ahead finance deals.
There is a choice...perhaps they will introduce a 72+ month lease to roll over deficiencies? Same as stretching the finance terms a few years ago.
Reality Check 3
When manufacturers abandoned leasing in Canada, they opened the door for Canadian financial institutions to become more active in the auto segment. Auto sales have exploded with the increased participation of financial institutions, which also influence the captives in recalibrating the risk of auto loans.
You have to wonder why "industry experts" persist in connecting the wrong dots, or remain oblivious to the emergence of new dots.
In the meantime CMS is enjoying mobility at $500 per month, and will keep on demanding and enjoying mobility. Its similar to a lease...especially when "everyone has skin in the game" pitching in to roll the negative equity risk down the road.