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Entries in Leasing (5)

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

 

 

Wednesday
Oct272010

Leasing

A few weeks ago in our sales report we mentioned that leasing had literally evaporated in the Canadian market from a high of 40% to a low of 7% in 2009. Commenting that this dramatic change in the leasing landscape would affect the way business is conducted in Canada in the coming years.

By now you know that the auto industry abhors a vacuum, its an intrinsic trait of the industry to quickly fill vacuums especially vacuums that can provide a competitive advantage (don't they all).

Obvious that leasing has created a huge vacuum, that some folks are looking to fill. This situation is developing into an interesting school yard squabble of have and have nots.

Lets look at why leasing was so popular in Canada:

 

  • Remember the low Canadian dollar and high vehicle prices of a few years ago?
  • Leasing was/is the ideal financial instrument to camouflage high prices, into a low monthly payment.
  • Every manufacturer used leasing to camouflage prices.

 

What happened when the Canadian dollar reached parity with the US dollar?:

 

  • Every manufacturer being heavily involved in leasing had absolutely no desire to adjust their pricing.
  • Every rationale was being disseminated to uphold the pricing structure (late 2007).
  • Dealers were under intense consumer pressure that prices were too high. (as an aside was this using social media to influence a billion dollar industry).
  • Many dealers were muzzled by their respective manufacturer not to express their opinions (which might have sided with consumers).

 

How did the impasse/chasm get resolved?:

 

  • Manufacturers were standing firm and digging a deeper hole for themselves to uphold the pricing, dealers were muzzled, consumers were rebelling, cars were imported into Canada from the US.
  • It was an automotive industry PR disaster (imagine if Twitter was as widespread as today)
  • Strada...lets repeat this...Strada, yes us..were the only one's in Canada, that went on record on a national publication that the popularity of leasing in the previous years, and the ensuing residual risk was motivating manufacturers to uphold their pricing structure.
  • The instant that article was published the tide started to turn in favor of the consumer, with lower prices.
  • We said that Canadians wanted a "fair Canadian price" even the tag line was adopted by a manufacturer; once the prices were adjusted. 
  • We don't usually honk our horns, but at times its required....

 

What ensued from the lower prices (2008)?:

 

  • Immediately some manufacturers focused solely on the residual risk, and curbed their leasing activities.
  • Discounts for a cash deal, or lengthy 0% interest loan become the order of the day. 
  • The used vehicle value risk was inexorably transferred to the consumer. 
  • Other manufacturers (luxury) had less options/desire to pull out of leasing, they remained in the leasing arena, while recalibrating their business model (enhanced CPO activities).
  • 2008 was almost a record sales year in Canada...at lower prices!

 

What developed with the industry meltdown (2009)?:

 

  • Widespread leasing in Canada was decimated....to almost non existent.
  • Credit crisis!!!...while Canadian banks were/are bursting with money?
  • The manufacturers still leasing "cannot believe their luck" (windfall sales).
  • The "remarketing" industry by now well developed, and fine tuned, is seeking additional remarketing opportunities.

 

What is developing in 2010?:

 

  • A resurgence of leasing interest from manufacturers that pulled out.
  • Tacit acknowledgement that the manufacturers that remained in leasing, have done well, while capturing lease orphans.
  • The remarketing industry is seeking to replace the mass remarketers (leasing companies) from the previous years.
  • Canadian banks that have been shut out of leasing for countless years, see a golden opportunity come their way.

 

 Some take aways...

 

  • Leasing for years was an intrinsic financial instrument in the Canadian market, and remains an intrinsic instrument for certain manufacturers.
  • The Canadian automotive leasing landscape is ripe for independents to gain a bigger share, especially independents supported by the Canadian banking establishment.
  • The argument that banks should stay out of leasing is greatly diluted when leasing has gone from 40% to 7% in the space of 2 years....
  • The Canadian consumer can win by having banks assume the residual risk.
  • The common front of the auto industry vs banks is fragmented on the part of the auto industry.

What do you think? Care to share your thoughts, opinions, leave a comment.

 

 

Wednesday
Mar102010

Numbers

In the auto industry most numbers relating to sales are analysed, dissected, and commented by a myriad of pundits for all sort of reasons. You know, that numbers can be interpreted from several perspectives with varying nuances. Ever hear the term a "numbers game"? In case you did not know, the sales numbers always get a PR spin at the end of the month.

The other day we bumped into the following numbers originating from DesRosiers. Its no secret that we have a keen interest in the financial packages that are offered by manufacturers. As well as the effects the packages have on the various "dynamic pricing" strategies, and tactics deployed by the manufacturers. You may have forgotten, the Colonel took a leadership position on the value of the Canadian dollar, and prices of vehicles; at a time when many where facing a cement wall.

Going back a few years, and taking a look at the financial package mix in Canada for new vehicles.

 

Year............................Cash...................Lease..................Finance

2003...........................9.6%...................35.9%.....................54.5%

2004..........................11.9%..................39.5%.....................48.6%

2005..........................11.0%..................45.0%.....................44.0%

2006..........................12.1%..................41.2%.....................46.7%

2007..........................12.6%..................42.4%.....................45.0%

2008..........................15.5%..................24.0%.....................60.5%

2009..........................16.5%...................7.0%......................76.5%

 

Some points from The Colonel:

  • For years leasing was a strong component of the financial package in Canada, especially when prices were high, leasing improved afford ability of new vehicles. 
  • Every manufacturer assumed a substantial residual risk in Canada, to improve the value proposition of their product through leasing (incremental sales).
  • For a few years, the low value of the Canadian dollar created a unique export opportunity for used vehicles (lease returns).
  • The Canadian customer/consumer through leasing, was receiving excellent value for the lowly Looney. While manufacturers were assuming the residual risk, by having skin in the game.
  • What happened to leasing in 2008 (a substantial drop from the previous years)? Manufacturers reluctantly adjusted (lowered) their prices in late 2007, and early 2008. 
  • In addition Cerberus who owned GMAC and Chrysler Financial at the time stopped leasing vehicles, needless to say Ford quickly followed.
  • Leasing in Canada being a strong component of the financial package, removing the residual risk from the table immediately bolstered their position.
  • In 2008 many manufacturers started to move away from assuming a residual risk (lease) , while offering 0% financing, and shifting the used vehicle value risk to the customer.
  • This exedus from leasing, and having less skin in the game; has become a tectonic shift in the retail landscape of new vehicles in Canada. Its HUGE!

The Canadian market functioned on the basis that manufacturers through their captive finance companies assumed the residual risk of close to 50% of the new vehicles sold. To a market where the customer assumes the brunt of the used vehicle value risk.

Its a tectonic shift in the Canadian market.

More points:

  • Cash payments have increased through the usage of HELOC (home equity line of credit). Imagine the customer assumes a used vehicle value risk, by using his home line of credit.
  • The ongoing activity/creativity in the "dynamic pricing" of vehicles, and deals will not subside in the near term.
  • Luxury vehicle manufacturers never stopped leasing, their sales have increased appreciably in Canada.
  • The same luxury manufacturers have expanded their CPO (certified pre owned) efforts to diminish the residual risk.
  • Is it fair to say that in the next trade cycle starting in 2011 (36 months from 2008) this tectonic shift will reverberate through all the stakeholders of the industry. 
  • Is it fair to say that the remarketing landscape as we know it today, might/will not work in 2011?
  • Customers might be "disenchanted" (upside down) come 2011?
  • Dealers will be increasingly challenged to close deals?

What do you think? Share your thoughts! Leave a comment.