The only comment I’d like to make in this thread is the market was heaven 16-20 months ago.
We don’t know what it’ll look like in another 16-20 months.
hell
10char
BMW’s business model doesn’t depend on selling lease returns at auction. All this talk of inflated RV kinda misses the point.
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Do they really care about saying they are the largest luxury brand ? That desire seems antithetical to being a lux brand.
I’ve always wondered if there was some kind of creative accounting played with the leases or their associated losses on the OEM side after a lease due to insane residuals.
Find it hard to believe they just chalked up blatant losses to get more cars on the road or etc. I think there has to be more to it than that.
What makes you assume there are blatant losses?
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Mainly the RV which seemed quite inflated coupled with substantial discounts and incentivizes.
Though I’m sure these are offset to some degree by suckers who still paid a ton a few years ago.
Look at what the lux brands have done over the last 10 years in an effort to “hook” more people into the ecosystem. Whether it was BMW that started with an X5 in America and now you can get X1 through X7 at different price points. BMW also decided to offer three different engines in the 3 series so you could get a 320i, tell friends you had a beemer, and were now in the ecosystem. Similar story with Audi and Mercedes who stripped down or substituted lower cost interiors and offered more models like the A3 or the A220. In some countries you can get an A1. These marketing ideas didn’t offer to much product differentiation but a slightly lower price point that started to get pretty close to the Japanese and Korean entry level vehicles. Which obv drove sales volumes while also increasing costs to run more production lines in the hopes that people upgrade to a 5 series or an A6 next time when they are making more money.
Keep in mind even with inflated RV’s when you have a portfolio of a few billion at an avg 3% interest rate, it starts to pay off. The FS sides of most of these companies generate a tremendous amount profit. They also do loans, not just leases, including floor plans & construction / operating loans for dealers and suppliers. A few years it was the only reason Ford was able to hang on was from the profit generated by Ford Credit.
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Reducing price $2k vs. Increasing RV $2k are the almost same cost for the seller on a lease. Actually increasing rv probably less cost because you delay it. But increasing RV doesnt piss of the buyer and impact the value of the new car. Also it prevents the lessee to buy the car at the end of the lease so he becomes a new car customer again. Thats why manufacturers like leaeses and put more incentives on lease than sales. The lower the average age of a car in the market means more sales.
Dont look at it as one time transaction.
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That’s my take, too. Most people were not getting insane deals on luxury cars and, with those who were, you (as the dealer) get back a lightly used product that you can sell at a fairly high price and make a lot of those customers feel like they’re locked into the brand (as long as the manufacturer continues to offer some cheap leases, which were probably only a low percentage of your total sales).
To me, it doesn’t make a difference, but the company stockholders might feel differently.
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Would this be bmw of Freeport 
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This statement is close to reality but here is the real comparison between reducing price by $2k vs increasing the RV by $2k.
With leases and pricing risk, lenders model severity (realized losses on the units returned at the end of term) and return rates (% of vehicles that make it full term and come back in a loss position).
The combination of those two factors determine the true RV risk for a portfolio.
To manipulate a monthly payment you can move the cap cost down by x or increase the RV by x and have the same net effect on the payment. Moving the RV by x will affect the severity by x but only on the units that are returned. The units that don’t return have a severity of $0. Moving the RV up will increase the overall return rates and thus the total realized risk but that will always be less than the total cost of adjusting the cap cost down by X (in the form of an incentive).
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Thats correct you only give the $2k to the people who return the car. I have no idea how much percentage returns vs. buyouts but it makes increasing RV even better option when you take that into account.
It varies greatly by severity. If the RV is $2k (or less) higher than average wholesale values, the return rate is usually under 30%. If the RV is $4k (or less) higher than average wholesale values, the return rate is usually under 60%. Anything over $6k and lenders expect to see 80%+ return rates.
These are where the real risk forecasters earn their salaries.
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RVguy, as always, this makes so much more sense when looking at the Rv spread on specific brands and model ranges.
You start to see some patterns in expected leasing behavior and incentivized behavior.
Yes and there is a large margin for error for lenders because of intangible factors that can prevent a vehicle from coming back at full term.
If someone drives more miles than their contract allowed, they may choose to buy out the lease instead of paying the mileage penalty. Same goes if they beat up the car and may have wear and tear charges.
Total loss claimed eat up a few points of the lender’s lease portfolio as $0 RV risk, depending on the region. A very small amount end up as credit risk where the lessee defaults on the lease and they have to repo it. Most serial lessees are extremely credit-conscious so the overall credit risk is ultra low.
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Which could be mitigated by nixing any mileage penalty upon return if staying loyal to brand.
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Which brands/banks do that?
Heh, was speaking hypothetically…it would be a great tool moving forward, though, becuase imo electric miles aren’t exactly the same as ice miles, and folks like me who do 40K miles a year are at an extreme disadvantage, despite my cars/trucks looking and behaving like new, when they’re practically worthless.
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I’ve had FCA do that for me. Was over miles on my charger and they waived mileage overage & disposition when I got into a new challenger shortly thereafter
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Am I better off getting a lease on a BMW now? Or wait a few months until August?
Will lease deals get better or worse within the next few months? Predictions?