Will leasing really come to an end?

[-=Hot|Ice=-]

I have been reading articles about car manufacturers wanting to stop leasing because the car industry is hurting. Do you guys think this will ever happen. Now my question here to Bud001 and Mr.Gregski is one of the companies that was named was BMW.

Now, this surprised me because 60% of BMW's are leased. Do you think BMW along with other brands will actually stop their leasing programs? if so, for how long? Will it have a big impact? How will this hurt the car industry? How will it hurt dealerships? Please, everyone feel free to discuss.

Sorry if this sounds stupid, I just want some opinions and some insight. :D

[MrGregski]

I honestly don't think it will happen, it's too profitable. I haven't seen anything on the bimmer boards, let me check.

[cdeslandes]

They'll just have fancy balloon payment loans instead.

I believe leasing isn't allowed in New York state, and they have fancy financing like that.

[-=Hot|Ice=-]

This past week, the auto industry has been shaken by the very pessimistic reports and disastrous quarterly earnings reported by some of the largest automakers. BMW is one of them and with 1.6 percent drop compared to August ‘07, the future does not look too rosy.

While the overall sales for the BMW Group are up 2.2 percent (thanks to the Mini brand mostly), the year-to-date sales are down 8 percent, which for a giant automaker as BMW, can only announce new changes in their business strategy.

Last Thursday, in an important BMW Board meeting, the rumored X7 project was erased from BMW’s future plans, but that’s far away from the bad news to come. BMW is raising prices next year, with some of them being implemented by the end of this year for some of the MY09 cars.

Wait, did you think this was all? No, in the same time with the price increase, BMW will manufacture fewer vehicles in 2009, with a rumored number around 25,000 less cars globally, and it will sell 40,000 fewer units on the U.S market.

How is this going to affect the buyers? Jonathan Spira, a well known and respected Business Editor for BMWCCA, explains it very well:

This will change as BMW will return to a pull-oriented (versus “push”) sales strategy that will limit sales volume, requiring customers not only to pay full price but to wait for cars rather than being able to drive them off the lot (something practiced almost universally except in the United States).

Paying MSRP for a bimmer is something that us, BMW fans, have not encountered over the last few years, with the exception of a few new models that weren’t discounted the first few months.

And if this wasn’t bad enough, then the 60% of the BMW owners that are part of the leasing program, are in for a big surprise as well. The highly subsidized BMW leases were a gimmick that allowed many buyers to get some amazing deals on some quite expensive BMW models. It was pretty much common to lease a $40,000 bimmer for a monthly payment of around $500, a much lower payment that BMW’s competitors with cars in the same price range.

BMW will begin offering higher incentives to customers that are looking to finance a car or cash-purchase it, rather than going through the famous BMW Financial Services program. As a paranthesis, I remember leasing my previous BMW 325i with a finance rate of around 1% over a 3-year period, which combined with higher than normal residual values, it allowed me to lease my $36,000 car for $400/month.

There are many other angles here and tons of other details that can be discussed, but I will let our dear Jonathan Spira take over and give you some more detailed information over at BMWCCA forum.

As always, please feel free to leave a comment and tell us what you think. Let’s start a conversation on this and see what your future plans are.

P.S If you’re on the market for a new bimmer, now it’s the time to analyze the facts at hand and decide fast on which car to get.

BMW to increases prices, cut production and reduce the number of leases

[ckolsen]

Originally Posted by -=Hot|Ice=-

This will change as BMW will return to a pull-oriented (versus “push”) sales strategy that will limit sales volume, requiring customers not only to pay full price but to wait for cars rather than being able to drive them off the lot (something practiced almost universally except in the United States).

This should fit well with my plan to never buy another BMW.

Without leasing, new car sales in the US would drop in half. I'm guessing the carmakers don't want that.

[HoustonLex]

Combine a down market, with rising fuel costs, and residuals of off lease cars aren't holding up. Therefore leases are bad to the car companies.

Once the market improves, gas prices stabalize, and cars become more efficient, residuals will once again be in line, and leases will be attractive to auto makers.

Cutting back on leases is temporary.

[jruhi4]

Originally Posted by -=Hot|Ice=-

I have been reading articles about car manufacturers wanting to stop leasing because the car industry is hurting. Do you guys think this will ever happen?

Sorry if this sounds stupid, I just want some opinions and some insight. :D

It's not stupid at all. Quite the contrary, it's a super-relevant and very timely discussion of a discussion that is still unfolding inside both U.S. carmakers and car importers.

One of the subjects on my ever-lengthening "my.IS Front Page stories I need to write" is what effect, if any, this issue will have on the future of Lexus IS leases. I need to contact both dealer and corporate sources to get feedback and information.

From what I've read, it's more SUV/truck/crossover leasing, as opposed to car leasing, that is an endangered species.

Originally Posted by HoustonLex

Combine a down market, with rising fuel costs, and residuals of off lease cars aren't holding up. Therefore leases are bad to the car companies.

Once the market improves, gas prices stabalize, and cars become more efficient, residuals will once again be in line, and leases will be attractive to auto makers.

Cutting back on leases is temporary.

I totally agree with this.

[jruhi4]

Post #4, by -=Hot|Ice=-, is the best, most informative thing I've read on BMW and leasing. Here's another one that I'd read earlier, by Neil Winton of The Detroit News:

BMW facing more write-offs after U.S. leasing debacle

German luxury car manufacturer BMW might have to write off up to another $1.4 billion by the first quarter of 2009 because of problems with its U.S. leasing portfolio.

The world's most successful premium carmaker, which has said it is switching its sales efforts way from the U.S., reported second quarter net profit fell 33 per cent to $760 million from the same period of 2007, and was forced to cut its profit forecast.

BMW wrote off $690 million in the second quarter and $350 million in the first three months because of U.S. leasing problems.

The company slashed its pre-tax profit margin forecast for 2008 to at least 4 per cent, compared with its previous forecast of at least 6.4 per cent.

Investment banker Morgan Stanley, which is still a believer in BMW's long-term future, said the company is facing some home truths.

"BMW is finally forced to de-prioritize two of its favorite pastimes - 1) the U.S. consumer and 2) leasing. The full impact on the underlying profit by not selling that incremental car to the finance sub remains to be seen," Morgan Stanley said in a report.

Merrill Lynch, in a report titled "Lease Implosion 2", said other German manufacturers are unlikely to escape similar charges on their U.S. lease portfolio, and had some praise for BMW's actions.

"BMW is taking sensible actions, reducing U.S. sales targets, reducing production capacity, raising prices, increasing labor flexibility, and managing residuals," Merrill Lynch's Harald Hendrikse said.

The U.S. is BMW's biggest market, accounting for 22.4 per cent of BMW's sales in 2007.

Morgan Stanley's Adam Jonas believes the company will be a long-term winner. He said BMW is paying the price for its aggressive lease-focused commercial strategy in the U.S., and the write-downs were necessary to clear the air.

"Nonetheless, the risk of subsequent write-downs is high and we have recognized a further $1.4 billion million of provisions in our forecasts by the first quarter of 2009. In a worst case, the write-downs for falling used car prices could run into the billions," Jonas said.

"Longer-term, BMW is a winner in this industry. Shorter term, we cannot rule out operating losses. 2009 is setting up to be a very difficult year for BMW and the global auto industry. A few quarters of loss-making results may be unavoidable given the macro headwinds," said Jonas.

DETNEWS | Weblog | Autos Blog

Jruhi4 commentary: I had already e-mailed the folks at Merrill Lynch about obtaining a copy of that "Lease Implosion 2" report. No reply from them yet.

[petaa7]

as of now, from what dealers are telling me, is that it's not as profitable anymore because with rising gas prices, and the ability for a leased car to hold it's value.

they don't make money off cars that are leased because they become harder to sell to the public once they are returned.

[BUD001]

I am happy to see BMW cutting back on leasing activities. My neighhborhood is CHOKED with leased 328i with little to no options driven by every other yuppie wife. In fact, i think its a good thing that BMW is reducing the sales target.

For one thing, there is the cold reality of the economy.

But more importantly, for BMW fan boys and girls, the reduction of leasing and sales means we can finally claim back some of the relative exclusivity that BMW originally offers. Right now outside my gym every day there are at least 10 3 series out of the 100 cars (approx).Just the other day as i was laving another 3 took my place. Cutting back leasing and not let every joe and jane schmo lease a 328 base model is a good thing.

[HoustonLex]

I remember just a few short years ago, salespeople would get higher commissions based on leases than they did for traditional financing because the dealership generally made more money on leases.

[Pawel]

Originally Posted by BUD001

I am happy to see BMW cutting back on leasing activities. My neighhborhood is CHOKED with leased 328i with little to no options driven by every other yuppie wife. In fact, i think its a good thing that BMW is reducing the sales target.

For one thing, there is the cold reality of the economy.

But more importantly, for BMW fan boys and girls, the reduction of leasing and sales means we can finally claim back some of the relative exclusivity that BMW originally offers. Right now outside my gym every day there are at least 10 3 series out of the 100 cars (approx).Just the other day as i was laving another 3 took my place. Cutting back leasing and not let every joe and jane schmo lease a 328 base model is a good thing.

Why do you get so damn offended by that? It's only a BMW, we are not talking here about some mid/high end exotic. It really cracks me up when people think that BMW is the greatest thing out there. There are shit load of them I give you that, in my neighborhood there is almost as many as Corolla's and Civics.

[LexIShirm]

Originally Posted by BUD001

I am happy to see BMW cutting back on leasing activities. My neighhborhood is CHOKED with leased 328i with little to no options driven by every other yuppie wife. In fact, i think its a good thing that BMW is reducing the sales target.

For one thing, there is the cold reality of the economy.

But more importantly, for BMW fan boys and girls, the reduction of leasing and sales means we can finally claim back some of the relative exclusivity that BMW originally offers. Right now outside my gym every day there are at least 10 3 series out of the 100 cars (approx).Just the other day as i was laving another 3 took my place. Cutting back leasing and not let every joe and jane schmo lease a 328 base model is a good thing.

You sound like a stuck up little girl. You drive a 330i and are talking about exclusivity? Get over yourself. As far as I am concerned you are just another yuppie.

[ckolsen]

BMW is jacking up prices, especially 3 series, it's a 2.1% increase plus some previous standard items on the 335i are now optional.

Makes me glad I'm not shopping BMWs.

[BUD001]

Originally Posted by Pawel

Why do you get so damn offended by that? It's only a BMW, we are not talking here about some mid/high end exotic. It really cracks me up when people think that BMW is the greatest thing out there. There are shit load of them I give you that, in my neighborhood there is almost as many as Corolla's and Civics.

I am not offended. I am just annoyed.