Ask a Leasing Industry Insider Anything

Instead of fielding numerous private messages regarding questions about RVs, MFs and leasing with the various lenders, you can use this topic to ask me specific questions and I can respond publicly.

I have been involved in the leasing industry for many years. RV forecasting, risk modelling and program/incentive modelling are my primary areas of focus. I have done this work at a large captive lender, a 3rd party RV forecasting company and now with Credit Unions that are leasing.

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Thanks for all the insightful information you have provided thus far. :+1:

With many vehicles coming off leases, how would that affect the RV of new vehicles today? Would the banks lower the RV to match the market or keep them “artificially” high to maintain sales?

Thank You @RVguy!

Do you know which Suv’s will be heavily discounted in the near future?

Do you think it is better to lease perpetually, buy new and keep for 10 years, buy used and keep for 8 years, or just depends.

What is the most attractive lease right now?

What is the highest lease cash incentive you have seen? I remember something about the last few months of the Pontiac GTO a few years ago where GM was almost giving them away for a lease.

How would you recommend someone like me, a mid thirties guy with a Business Admin degree get into your field and what kind of salary would you expect beginning and the range?

Thanks for any responses!

Another crystal ball question, but if the expected glut in used cars happens, particularly off lease non-SUVs, I assume that will not only impact values on turn in in 3 years for those of us who just signed up, but may also reduce any future pull ahead offers that have been almost expected historically. This is one of the things my MB dealer was dangling in front of me when I was looking at a 36/10 lease that even if I was at 30k miles after 30 mos, I would likely get miles just forgiven on a 6 month pull ahead. If macroeconomics are predicted to change, I may need to come up with abother plan.

Thoughts?

Thanks!

@jon Great question but this is very deep and varies greatly between lenders.

Supply of used vehicles is increasing and is expected to increase through 2019 or possibly into 2020, depending on who’s used supply model you believe. The ramp of of leasing penetration and higher overall vehicle sales is contributing to this. This puts downward pressure on used prices at auction.

But there is a growing demand component that will offset this to some degree. Driving age population has increased steadily over the last few years and is expected to continue to increase. The number of vehicles in operation has also grown dramatically over the last few years so as these units approach certain ages, those owners get rid of their cars and need to acquire a different one, new or used. These are units of demand that can absorb the units of supply.

The balancing act between the supply units and demand units will dictate the price direction and magnitude of change. This varies by sector (mainstream/luxury), segment and often times model-level as well.

There are many different factors and metrics used to predict future prices. Product life cycle, incentives, fleet pen, etc. and then all the macroeconomic variables.

The direction of RVs will almost always go down but it really depends on the reserve strategy at the banks and captives. Each one is very different. If they have to hit certain sales targets and want to make leasing a strong part of their volume, they will set RVs and MFs to have attractive monthly payments while also reserving for future RV losses and credit losses.

Each cycle (quarterly, bi-monthly or monthly) the lenders forecast losses given the latest remarketing and wholesale market pricing data they to see what sort of portfolio-level loss they are expecting at that point in time.

If the lender decides to prop up the RV (usually after dropping the MF first) they will need to set aside money to cover higher losses and the higher return rates.

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@levi Incentive changes are a reaction to the market demand (vehicle or segment) being different than prior expectations. So to forecast those, you have to predict the OEM incentive team’s reactions to a market reaction.

I have no idea which will be heavily discounted in the near future. But the incentive trends show an average increase through time on a model within a model year and within the lifecycle.

You can acquire days supply data which is often an early indicator of upcoming incentive changes. If the demand slows on a model, the days supply number will increase. If it breaches certain thresholds, the OEM incentive team will react by adjusting incentives or living with lower sales.

@adamcar [quote=“adamcar, post:4, topic:16704, full:true”]
Do you think it is better to lease perpetually, buy new and keep for 10 years, buy used and keep for 8 years, or just depends.[/quote]
I would say that it depends on your personal situation. Your budget for transportation/maintenance, desire to drive something new and attitude towards finances in general. Making the final payment on a vehicle and being free from the monthly payment is a great feeling and allows you to divert that expense elsewhere. But if are able to budget a set amount of money for the foreseeable future and live comfortably in that range, you can drive a newer car (0-3 years old) for as long as you choose to or for as long as the lease prices stay within your budget.

Attractive is all relative. I don’t put much value in MSRPs and the common train of thought here to use 1% of MSRP as a barometer is not a great scale. Some OEMs are more aggressive with their MSRPs than others in the same segment but they rely on incentives and dealer discounts to get to a similar transaction price. Infiniti comes to mind here. They have juiced up MSRPs but heavy incentives/discounts so the monthly payment/MSRP looks better than other brands that has a different pricing strategy.

There have been some $15k-20k incentives in the past on vehicles like S Class, 7 Series, A8 when they are trying to sell down the old model year while they still have a lease program in place. As a % of MSRP, this is similar to a $6-8k incentive on more bread and butter segments.

This is a quantitative analytics field so take and classes you can (online there are lots) about stats, economics, data science, econometrics, forecasting and then learn how to tell a story with data. This is all about making a case for a specific position and backing it up with data. Make sure you are an Excel/SQL guru. Every shop that does this type of data will have so many legacy processes and datasets that are brought into Excel via SQL or straight flat files. Learn Tableau (or other BI visualization tools), Alteryx (or other data blending tools), R (and or Python and possibly SAS, depending on who you are trying to work for). Read everything you can about the auto industry, remarketing and auto finance. There are trade magazines you can visit daily to get a pulse on the industry. If you can load up your resume with those types of skills, then you will get some more eyeballs on your resume in the event that one of these jobs opens up. Network, network, network via LinkedIn. You’ll want to learn who the people are that are in this field and you can find them via LinkedIn.

This is a tiny niche within the auto/financial services industry so there are rarely entry level jobs that open up in the RV setting. Your best bet is to get a foot in the door at one of the non-OEM, non-captive companies that tend to hire entry level and train. Salaries there start in the 50k-80k range, depending on your skillset. So that would be a move to LA to try and work for Edmunds, KBB or ALG. Or you could try to get a foot in the door at Cox in the Atlanta area. They own Blackbook and several other companies. JD Power (formerly NADA Guides) also has an RV team in Virginia.

Or you can try to get a job at a captive, OEM or 3rd party lender. Dallas has the highest concentration of RV groups for a metro area so it would be good job security to get in with one of the companies there (TFS, GM Financial, Exeter, Cap1 and many smaller ones). Ally is in Phily, US Bank is in Cincinatti, World Omni (SE Toyota) is in FL, Mercedes and Porsche are in Atlanta. Cadillac, VW Credit is in Virginia, BMW, Jaguar, Land Rover, Chase, Volvo are all in NY/NJ. Hyundai, Kia, Mazda, Hyundai Capital are in Orange County.

You can look up specific salaries for Risk Manager, Risk Analyst, etc. in those metro areas to get a general idea of what is realistic for these types of jobs. Top end with multiple decades of experience at various ends of the industry and you are looking at 200-400k plus bonus and occasionally a pension. You’ll have great job security for as long as you want to work since there are roughly 100-200 people alive that can do this for a lender.

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Did you lease your car/cars? And what do you drive?

@bigdaddy No, never through the consumer lease programs.

My various jobs in the industry have included perks with access to different fleets of vehicles and discounts to buy/lease through the employee programs. For many years I had access to a fleet or redesigned products where we rotated into new cars weekly as part of the job. Just about every make and model were available at some point in each product’s life cycle, outside the exotics.

At another job, I had access to an employee lease program and had an employee discount to buy new cars for that brand and also have access to buy the used vehicles that came out of the employee lease program. I took advantage of all of those options and when I left that company I owned 2 vehicles. A compact sedan bought new and a 2yo midsize utility bought with 20k miles, both with loans through that employer.

Eventually I’ll lease once I get tired of driving what I currently have.

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You say that the 1% rule is not a great barometer. I wonder - how would you rate my deal below(with the assumption that Tacoma was the vehicle I was set on having)?

Also, similar to @adamcar 's question - if you had to lease a car tomorrow, what would it be?

Thanks for doing this for the community!

Are there, generally speaking, good seasons and bad seasons to look for lease deals?

I had always heard that the best deals are to be had in the winter when many dealers are trying to deal with inclement weather conditions.

Maybe spring sales events when people get their tax refunds?

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@getyourbiglobster I think the benchmark to use is the monthly payment divided by the net transaction price and your deal is excellent btw. Just don’t go over your mileage.

The way I would pick a lease vehicle is to look at current wholesale prices and see which cars coming off lease today are in positive equity positions. I would pick a lease that minimizes the monthly payment/transaction price ratio and also has a high probability of being in a positive equity position at the end of the lease. I want to identify the models where the lenders are historically low on the RV relative to wholesale prices. yet still having a strong RV%.

So currently that limits the selection to just midsize trucks and SUVs. Tacoma TRD Sport, TRD Offroad, 4Runner, Highlander, Lexus GX, Outback, Wrangler, Colorado Z71/ZR2, Grand Cherokee Limited/Overland, New Compass Trailhawk, Rav4 Hybrid and possibly the low end Range Rover Sport. I might gamble on the new XC60 as well.

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Which one is the best brand to lease compared to buying? I am talking about $30k-$50k range.

@Bowser330 Different OEMs have different months they use for their sales events. So you’ll want to find those and pick specific models for those brands to track during the sales events. Generally a redesigned model will launch and have the strongest RV of the lifecycle but with minimal discounting/incentives and not much support on the MF. If the segment is declining in demand, then you can expect the new car to launch with a supported rate and some minor incentives but the RV will be lower.

The incentives teams will take a few months and see how the market has received the product and then if they aren’t hitting their targets they will start the incentives/rate buy downs. So 3-6 months after a new redesigned model launches is often a good time to lease.

And any time the days supply starts creeping on a high lease-pen vehicle, you’ll start seeing some creative incentives to move product.

Also, some months have specials on odd terms so the cars come back in a better wholesale seasonal pattern. Look for 39mo leases originating in late fall for those types of deals.

@hahakar I haven’t done any analysis to pinpoint the group of brands to steer to leasing or purchase. Most brands will have a couple really strong products and several that aren’t as strong.

When I help someone shop for cars, I have them pick a segment or group of segments based on their budget and level of utility/functionality that they can’t live without. Then I point them to specific models in those segments based on several metrics: incentives, sales volume, days supply, current wholesale prices, design and any specific features they really care about.

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Hello, thanks for the great info! What is your recommendation to take most advantage of positive equity? If you want to sell private party before lease end, any options to reduce double sales tax? Thanks ahead of time for your knowledge!

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@RVguy this is phenomenal! Thank you for being so generous with your time!

Can you explain the terms below:

-daily supply

  • payment/transaction price ratio
  • high lease-pen

Also, when would you say is a good time to lease a grand cherokee limited?

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Something @RVGuy can chime in on is a current, situation a client of mine is going through.

US Bank has the best program for this vehicle (Pacifica Touring L Plus)

MSRP on this unit is $45,XXX.

The breakdown I have on an invoice (below)

US Bank will only allow you to residualize a max of $41,300 on a Touring L Plus … so their payment is horrible.

CCAP is the only lender willing to do a decent deal on this unit. (Sales price of $41,798 as of this moment)

Just one of the intricacies of car sales never discussed.

I’m sure @RVGuy can touch on this one a bit more

Edit: Was wrong on sales price - is $41,798

@Benedetto Yes, some lenders use an MRM (Maximum Residualized MSRP) which is the cap that the RV% is applied to. Some lenders won’t fund deals above MRM or they will but they just don’t residualize anything above it.

ALG created the MRM a long time ago to deal with Porsche’s option list. You could nearly double the price of a 911 with options so to minimize the risk of leasing such customized Porsche, the MRM was introduced as a way to limit the risk for fully loaded vehicles.

The MRM calculation is too complex to discuss here but it accounts for specific projected installation rates on each option provided by the OEM on each model code.

This specific Pacifica VIN would be considered fully loaded with $6,255 of content. Content doesn’t hold its value as well as the vehicle does (relative to the MSRP). It is generally in the 10-50% range, depending on the package/option content and the pricing. If the lender doesn’t use an MRM, they normally will set the RV% a little lower to allow them to cover the added losses on the fully loaded models.

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