With upcoming Fed Rate Cuts; do you expect leasing rates to follow in lock stock or more or less?
This month’s expected rate cut is probably already priced in?
yes, probabilities on 50bps upcoming next two increasing though.
The short term correlation is really weak.
We’ve seen lower MF and lower APR on certain models long before the Fed cut its target — and stubbornly higher on others. It’s all supply and demand as it pertains to each model. And even then marketing support could arrive in the form of more rebates, which are more easily advertised, rather than lower rent charges.
The Federal Reserve sets the overnight rate, which affects retail banks. Most of the captive lenders aren’t retail banks, they (generally) “raise” money to purchase the vehicles they’re to lease to retail customers. That could be direct investment from the OEM (for which they expect a return), an inter-company loan, bonds they sell, private capital they raise, or loans.
There aren’t many captives (certainly not stand alones) small enough to take it a month at a time. So expect whatever funding they have to continue to run off at current rates until they raise the next tranche at a lower rate.
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Thank you very much, appreciate the further explanation on captives on how they think about funding.
While we don’t necessarily see this question on here often, we do see at least a similar context. In evaluating or hopefully putting together a target deal for dealers, mf is only one variable.
The FP&A group at each captive runs all sorts of scenarios so while maybe the mf goes lower, the marketing group decides to run ads touting that fact, it gives many buyers the impression of a good deal. Well if the mf is lowered but an incentive is lowered $500 and the rv drops 1% the captive can still come out ahead. We haven’t even made it to the variables that the dealer controls such as dealer discount, mf markup, and hard adds.
The idea as always on here is to evaluate all the variables and not lock onto one in creating a target deal.
As for the lock step part of your question, it’s pretty rare though not unheard of, to see mid month adjustments to lease programs.
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