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Entries in Leasing (7)

Wednesday
Dec032014

Incentives

We are fortunate, The Colonel is hanging out with us this morning. As you know he has been around the auto business for a few years. We heard that at one time he was criss crossing Canada to educate dealers on incentive programs, and leasing.

Its from back in the days when vehicles were sold "heads up" (no incentives, no programs), the customer was expected to have equity to do a deal.

Lets get this conversation going...

Q: Colonel, its December, as usual you are in good cheers this morning.

A: Thanks guys, another year almost done, Christmas around the corner, and a record for auto sales. Its a good time to be in the auto business in Canada.

Q: Tell us about selling vehicles "heads up" with no incentives, programs.

A: Simple MSRP, cost, do a deal somewhere in between. Trade ins were rarely upside down, and if it was upside down there was no basis to continue.

Q: The onus was truly on the dealer to sell vehicles and close deals.

A: Precisely....back to the showroom craftsmanship that is lacking today.

Q: We heard that incentives/programs had a negative aspect back in the day.

A: The auto business is product driven to this day. Incentives implied a weak product, an inability to compete heads up. The concern was always what happens when the incentives end?

Q: To digress for a moment, today we all know what happens when incentives end. Or when everyone gets on the incentive vector.

A: On the vector you move a ton of iron...

Q: Could it be that Lee Iacocca, K cars, buy a car get a check, contributed to the negative perception of incentives.

A: Its the classic paradox: Don't go there it can be addictive....Go there it moves iron. In addition to the mentality of "Our product is so good it does not need incentives"

Q: Leasing must have compounded the "fear factor"?

A: Open end (lessee responsible for the residual) leasing was a formidable fear factor at that time.

Q: Back in the day advising a dealer to get on the incentive program, and promote leasing would generate a good amount of push back.

A: Its sure did...the classic case of "We don't do it that way here"

Q: We heard that incentives, leasing, open end leases, arrival of the GST had a dramatic impact on the auto business.

A: Yes...very dramatic...imagine the manufacturers that promoted incentivised open end lease, and now the vehicles are totally upside down with the arrival of the GST.

Q: The customer was "hung out to dry" with an upside down residual.

A: Absolutely...but the manufacturer spent money (incentives) to capture this customer, and leaving him upside down was not productive for business...there was no continuity.

Q: This opened the door to closed end (lessor responsible for the residual value) leasing and planted the seeds for remarketing initiatives.

A: Closed end leases improved the continuity and loyalty. Although it was a scary thought at the time of carrying a massive residual value liability.

Q: Colonel...many points of this conversation resonate with 2014.

A: Yes...you can connect a lot of dots to 2014.

We will continue...

 

 

Monday
Dec012014

The Evolving Ownership Model

In Canada we are setting an auto sales record this year that has never been seen. A few months ago we mentioned that free flowing money was powering auto sales. As usual (not to brag) we were ahead of the "pedestrian opinions" in making it clear that money was super charging sales. 

Its interesting to see main street catch up to the fact that money is super charging auto sales. While being fixated on an antiquated ownership model

Think about this for a moment....

A few years back at least 50% of Canadians did not own a vehicle, it was leased. Is it fair to say that in Canada vehicle ownership was never a high priority. 

Canadian banks were not allowed to lease vehicles, while some manufacturers abandoned the leasing segment. Did CMS (Citizen Main Street) have an overnight epiphany, and do an immediate about face from leasing to ownership? What do you think? 

Reflect on this...

The monthly payment for a vehicle persists in the + or - $500 per month range, its almost a constant through the years. Be it a lease or a finance the monthly payment remains constant.

The interest rates are subsidized by manufacturers at close to 0% for the term of the financial product (lease or finance).

The finance terms are getting longer to keep the payments at $500 per month and to roll over deficiencies.

The auto business works best on a 36 month cycle, not an 84 or 96 month cycle. While CMS starts considering a new vehicle in the 24-36 month time frame.

Its obvious that CMS does not have a strong desire to actually own, or have equity in a vehicle.

Consider the following...

Executives, captive finance companies and the mainstream media remain attached to a conventional ownership model, and the notion of equity in a vehicle. Its been a valid model for countless decades. While keeping in mind that we were at 50% leasing penetration a few years ago. The "ownership model" was already strained at the time.

Independent financial service providers understand that manufacturers have little choice than to continue subventing interest rates for the mid term. While facilitating rolling over deficiencies. In addition these providers do not subscribe to an ownership model. They make a credit decision based on risk, and ability to repay on a monthly basis. Until the vehicle, the deficiency fit within the risk parameters its all good.

Ownership inexorably morphing into mobility...

CMS has a strong and enduring appetite for new vehicle mobility (transportation) at $500 per month. CMS has less of an appetite for actual ownership (equity), vehicle maintenance, issues with older vehicles.

Manufacturers, dealers, financial service providers, the auto industry is providing mobility at $500 per month. While being creative and innovative to continue providing mobility for $500 per month.

Did manufacturers ever think that shifting the lease residual risk to CMS while reinforcing an "ownership model" with finance terms. Would migrate into a "mobility model" with CMS empowered by manufacturers to stay mobile at $500 per month.

What do you think?

 

 

 

Thursday
Dec122013

Walking the Fine Line

As several manufacturers (we will not mention names) explore "premium economy" of the luxury segment, they are walking a fine line.

All the buzz is on the freshly launched or soon to be launched "premium economy" products, the advantageous pricing, how affordable this new product is, the DNA of the manufacturer, the size of the wheels, and so on. We can keep on going, but you get the picture.

In the meantime these manufacturers have a ton and we mean a ton of lease returns (most of the product is leased) that is on a direct collision course with the new "premium economy" product.

From an idealistic perspective one could days that they have "big ones" to disrupt their own very successful business model, and its a case of constructive destruction, creativity, and innovation. Lets not forget seeking a new and refreshed customer base. 

From another perspective, one could say that they are embarking on a perilous course, augmenting their risk factor, and at some point "residual values" and "premium economy" will intersect with a degree of collateral damage.

In the meantime lets enjoy all the new product buzz, the increased sales, "premium economy" morphing into luxury, and luxury morphing into "premium economy". While residual values morph to a higher risk level.

CPO sales (the canary in the coal mine) are already signaling caution.

It will be interesting to see how it all develops when several air bags deploy, and the talcum powder from the air bags settles. 

 

Wednesday
Jan162013

Money for the Deal

Our first "ebook" of 2013...

 

 

Friday
Oct292010

Vro0m Ro0m

Good Morning!

For the 5th Friday of OctoberCome in, its that time of year, the leaves are on the ground, the trees are bare, its wet, its raining, its not so cold (interesting), its dark...its fall.

In case you forgot, its the 5th Vroom Room of October, remember the 5 week ends in October? We are also on the cusp of month end, next week will be the sales figures for the month.

Absolutely...the espresso and biscotti are served...enjoy!

This week is the AJAC test fest for the Canadian COTY award, want to know the class winners follow the #AJAC ashtag. 

We started the week with Overdrive celebrating its 50th anniversary, if you are a truck aficionado, perhaps you even had a subscription to Overdrive at one time. Or you simply appreciate truck nostalgia...take a look.

The biggest city in Canada has a new mayor, Rob Ford...fascinating to see all the ink that flowed over the mayoral race in Toronto. Even our town has a new mayor...we had a feeling that it was going to be a new mayor for our town!

A few days ago, The Colonel shared additional thoughts, and timelines on the Canadian leasing landscape. Its fascinating to see how pundits focus on the "moment" omitting to see how actions/events developed to create the moment, and where it will go. If you are interested, and you should be, since the Canadian auto financial service landscape is evolving. The Colonel's thoughts are...here.

Last Friday we did a quick tour of the Collector Car Auction and took our usual photos...here.

Just a thought...are some manufacturers diversifying into the business of recalling vehicles? Is it a case of "If you can't sell them, try recalling them"? (a bit of sarcasm this morning) Its a good way to have customers revisit dealers, call customer centers, basically strengthen ties with the manufacturer and dealer. Is the recall the next CRM?

The Bond 007 Aston Martin sold for over 4M at the Automobiles of London by RM...here.

This past week if you have been reading that hybrids, plug in hybrids, electric cars are not for everyone. You knew that all along (didn't you?)...the fellow with the horse probably shared the same sentiments towards the motorcar.

From Gartner the top 10 strategic technologies for 2011, the following caught our attention

Social Communications and Collaboration.  Social media can be divided into: (1) Social networking —social profile management products, such as MySpace, Facebook, LinkedIn and Friendster as well as social networking analysis (SNA) technologies that employ algorithms to understand and utilize human relationships for the discovery of people and expertise. (2) Social collaboration —technologies, such as wikis, blogs, instant messaging, collaborative office, and crowdsourcing. (3) Social publishing —technologies that assist communities in pooling individual content into a usable and community accessible content repository such as YouTube and flickr. (4) Social feedback - gaining feedback and opinion from the community on specific items as witnessed on YouTube, flickr, Digg, Del.icio.us, and Amazon.  Gartner predicts that by 2016, social technologies will be integrated with most business applications. Companies should bring together their social CRM, internal communications and collaboration, and public social site initiatives into a coordinated strategy. The top 10 are here.

We just got word that Nike is featuring the MV Agusta F4 in its latest NFL ad campaign...here. Speaking of motorcycles, in case you forgot the EICMA show opens in Milan next week on November 2, you can easily follow on Twitter using the #EICMA hastag.

We conclude with our usual "old race cars" this is a 700 photo collection...yes 700...Click