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Entries in Canada (4)


Residual Values and Risk

As we all look ahead a few years down the road to 2020 there are increasing sound bites that leasing is increasing in Canada, and the risk of residual values.

Here is the deal...

If you have been around leasing for a while (decades) you surely remember there is always a lively debate on residual values, and there will always be a debate.

Leasing in Canada is a great marketing tool. Increasingly CMS (Citizen Main Street) is not interested in owning a vehicle and enduring the aggravations of vehicle ownership/maintenance. The warranty runs out and the wear and tear cycle of any vehicle initiates which is of no interest to CMS.

We could keep on going, and going, and going some more.

But...lets get to residual values.

To lease a vehicle you have to set a residual value at the end of the lease. The residual value is usually a percentage of the retail price (MSRP). Obvious there is a ton of crystal balling that goes on to set residual values. There are a slew of algorithms whirring away to set values, alleviate risk, and also allocate risk to various stakeholders.

Even with all the tools, algorithms, lets be candid the residual risk is a scary thing for a lot of folks.

Canada is a unique and interesting case.

Ten years ago manufacturers were content to assume a residual risk on 50% of the vehicles sold in Canada. At one point manufacturers conveniently got out of leasing and the cloud of residual risk. "If this manufacturer is on unstable financial grounds, and its captive finance company is under a cloud of residual risk from its leasing its really scary".

Especially when leasing was at 50% suddenly the bottom falls out of the leasing model..."Lets offer longer term finance to have a monthly comparable to a lease, and move what was a residual risk to CMS".

"We don't have to crack our heads, run a bunch of algorithms, torture spreadsheets to arrive at residual values and avert finger pointing".

The auto business thrives on a 36 month cycle, the reason leases were usually 36 months. While the strange numbered leases of 39 months, 42 months is to have a units returned at a more opportune time.

In the auto business you can keep a lease cycle going and going and going....reflect on this for a moment.

Converting lease customers to a longer term finance is very easy the outset. "You had a 36 month lease we can put you in a 48 month finance for the same monthly"...."Think about it now you will actually own the vehicle with only your name and the ownership, and you can drive it as much as you want".

The customer returns or is pulled ahead at 36 months, the warranty ran out, and wants a new vehicle "Sadly you owe more than its worth, don't worry about it, we will go to 60 months for the same monthly, but now we suggest you buy gap insurance too".

In Canada the manufacturers that continued to lease (step up to a residual value risk) have grown their business in the past 10 years. The manufacturers that transferred the risk to CMS with extended finance terms are under increasing pressure to accommodate CMS in rolling over deficiencies.

Now you hear sound bites of CPO programs, 60 months leases, residual values plummeting, and leasing is increasing slightly in Canada.

The reality...everyone is stuck in these long finance terms, pulling ahead, rolling over deficiencies.

The individual in the back of the room that did not abandon leasing; has understood that its a powerful tool. Do you think that this individual for a moment will share the leasing knowledge base they acquired in the past 10 years? We don't think so.

Is there a possibility that this individual will support and encourage the current "leasing sound bites"...what do you think?

Which is a bigger risk? Residual values or pulling ahead, rolling over deficiencies on finance terms that are close to the limit...what do you think?




Looking Slightly Over The Horizon

If you are in any business, you always "look ahead" in one fashion or another.

It might just be a case of "what's up with the immediate future?" are there any signposts that will provide some reference points.

There are all sorts of variables, everyone jumps on the digital wagon, pressures from all sides, customers increasingly demanding more, and lets not forget the legion of experts.

We could keep on going, but you surely grasp our direction.

Lets focus on the auto business in Canada. need to move iron for the business to flourish.

Yes again...2016 will be a record year for new vehicles, on top of a record 2015. While the signals during the past couple of months are cautionary.

Looking slightly over the horizon, 2017 is looming larger and larger.

Between digital here and there, all sorts of software, processes, experts, mobility, AV's you still have to look over the horizon and craft some sort of vision for 2017.

Better yet, which dots are you going to connect? The ones that everyone is talking about? The ones that you uncovered and no one is talking about? Agreed its easy to go with the flow and connect the same dots as everyone else.

A few points for your consideration...

  • The auto business is on a mission to increase variables, models, and complexity.
  • At the same time 20% of the models generate 80% of the sales.
  • As a dealer if you think that having a smooth, efficient process in your showroom, or service drive through is a key to have a problem.
  • As a customer, after doing all the online diligence for model XYZ, knowing the price, the incentives, researching the value of your trade in, e-mailing the dealer, setting an appointment...suddenly the metal does not have a problem.

Its a brave new "auto business" world looming on the horizon for 2017 in Canada.



Automated Vehicles

An informative and thought provoking Canadian survey and study on AV's.



Desire to Win in 2020

Its fascinating and revealing when you sit with folks ask a few questions, and basically get a litany of excuses, interesting enough they all have a level of validity.

Often the one thing you don't see, or hear is a "heart thumping" desire to win, especially from folks at the retail level.

If you tell anyone that "you play the game to win", you get a bewildered look.

Auto Business in Canada

Sales records on top of sales records, let's be candid the auto business in Canada is good. Everyone in the auto business does well, simply because business is good, and CMS (Citizen Main Street) keeps on buying or leasing new vehicles.

The fact that business is good is a great equaliser, and the rising tide floats everyone's boat.


Agreed...we all know there is a ton of technology, processes, software. Yes...the younger generation of "digital natives" is "tech savvy". Yes...there is a downside to all this technology, especially when folks start focusing on the technology for the sake of technology.


If by now you are not tired of digital here, Internet there, this platform, that other application, to name just a few. If you are not tired yet, perhaps you are hiding somewhere.

We all have smart devices, tablets, laptops, PC's, WiFi, high speed internet, connected cars. Again to name just a few.

If you have not figured out that the bulk of your digital traffic is from a smart device...and need someone to tell you...there is a problem.


Its a constant and the same for everyone. Reflect on this for a moment. Is there a competitive advantage?


As we often say, its the people that make the difference, they literally make all the difference. While providing  a competitive advantage, or disadvantage. The excuses and reasonings all hold some validity to increase the confusion.

Navigating technology, details, processes are routine tasks, to enhance the experience of interfacing with people.


Often business, and acquiring a competitive advantage becomes an exercise of controlling variables. The rampant technology is there to decrease the variables, not increase them. The technology is supposed to perform a myriad of routine tasks to decrease the variables.

Desire to Win

Honing a keen desire to win enhances the competitive advantage in an environment where most are using the same tools, deploying the same strategies, and tactics.

Can you teach the desire to win...perhaps. But it helps when an individual has "fire in the belly" to start.

Can you measure the desire to win? Absolutely.