[s-cars] Leasing

Sat Mar 20 14:03:53 PDT 2010

You haven't addressed the fact that companies often subsidize leasing to
artificially inflate residuals to have an artificially low payment. Then you
take an example of a car that has terrible lease terms (135i) and compare it
to a heavily leased and subsidized car like the A4 or the 3 series. If you
look at actual wholesale prices of A4s and 3 series prior to the credit
crunch putting a big crunch on leasing versus the very first cars to come
off lease since the crunch, you'll see that real wholesale prices of the A4
and 3 series have slightly improved in terms of residual value due to the
reduction in leasing and subsidized residuals that have killed values on the
used market for quite a few years now.

When you're talking about the upper end of the model line, flagship cars
tend to have poor resale value on the used market because the target market
does not buy these cars used and the secondary used market is unwilling to
pay a high price for a car that tends to be very costly in maintenance past
the warranty terms. That mentality even carries on to relatively reliable
used cars like the Lexus LS, due to the way this tier of the market is
bought and sold.

I guess you'll still call me ungentlemanly and an asshole for disagreeing,
but once again, you're not really correct.

Taka

On Sat, Mar 20, 2010 at 2:57 PM, <qshipq at aol.com> wrote:

>
>
>  Goodread!  I did a Econ paper college about Audo Leasing, how it works,
> andhow it doesn't.  Juxtaposed to VW and BMW good residuals in 2008, isthe
> rest of the world.  Years ago, when Honda was to first take FordTaurus in
> sales, Ford dumped 10's of thousands of units to the RentalCar Lease market,
> to make the "sales" numbers hit the marque, and theTaurus took the crown.
>  Fine short term strategy, but 2-5 years downthe line, you live with
> 'off-lease' sales competing with your new *and*used car sales.  Ford got hit
> hard for that move.
>
> Looking at BMW and Audi now, the reason Audi sells their comparablecars at
> such a premium price, partially reflects that poor 'Actual'Residual Value
> (ARV) Audis never seem to hit.  Contrast that with BMW,which historically
> hit their residuals well, the win-win is forcorporate and the consumer.  I
> find it quite interesting that Audi is'selling' high residuals (incl a press
> release from AoA President?!),as Leasing finance companies face the
> realities that Audi doesn't. Leasing companies look at historical residuals
> to predict futureresiduals.  Unfortunately for Audi, the transmission and
> maintenanceissues of Flagship transmissions and bread and butter turbos of
> thelast 10 years, massively reflects residual values 2 years from now.
>
> But it's not all bad news for the used car market.  When you go fromlooking
> at a new car now, to a used car 2-5 years from now, the Audisstarts to look
> attractive again.  High ARV, means that a 135i is gonnasell at a higher
> price used, than a comparable Audi 3 series.  Specificto many on this list,
> without mentioning any names (JNR), the ARV ofthe S8 and S6 makes them very
> affordable performance cars for thedollar spent.  But, it's also best to
> know 'what' caused that residualfailure.  That is to say, a savvy used car
> buyer will make sure the S8Trans has been done, or the S4 turbos have been
> replaced....
>
> Backing up to the war then, the company that will survive is the onethat
> makes the 'up' front money on the Lease with a High ARV history,because you
> tend to have a better list price vs the competition,because you don't have
> to cover a Low ARV in the price.  Then longerterm, the High ARV helps your
> Corporate and Certified Used Car Sales onthe back end.  Part of the lease
> price, is the Residual Value Insurancethat is built into the price.  That's
> paid for up front, and I suspectAudi historically pays a whole bunch more
> than BMW for that insurance.
>
> I hope for the day when Audi shows high ARV's, but when a Flagship RS6can
> be had for less than 30k right now, I'm not holding my breath. Alas, the
> smartest move then, what the (re-)marriage of Audi and VW. VW has some
> pretty good high ARV's, but that also creates anotherproblem.  I suspect the
> reason ARV are high on VW and low on Audi, isbecause the platform and
> drivelines are interchanged between the two,making the VW a better Audi
> value for the money.  Will be interestingto see in 2012 if the marriage was
> successful in ARV to Audi.
>
> Scott J
>
>
>
>
>
> -----Original Message-----
> From: JC <jc at j2c3.com>
> To: qshipq at aol.com; joe.pizzimenti at gmail.com; cody at 5000tq.com
> Cc: s-car-list at audifans.com
> Sent: Sat, Mar 20, 2010 4:30 am
> Subject: RE: [s-cars] Truth vs. Joy
>
>
>
> Testify to Joe & Scott on the Ultimate Leasing Machine & leasing economics.
>
> Another thing I submit Audi is/was copying from BMW...
>
> It's been years since I couldn't plunk down full cash to buy the car I
> choose (not that my choices can include Veyron's or R8s etc., but within my
> modest world at least...) But when we got the B7 Avant few years back we
> went in ready to buy outright but I reluctantly just had to take the lease
> option just because of the numbers. At the time, bustin' out my mad Herbert
> Kornfeld MBA number crunchin' skillz, I peeped that it was just retahded to
> do anything but take the special lease deals based on the crazy high
> residual number they were using. It was very very hard to see how the
> depreciation was going to be less than the sum of our lease payments over
> the period.  And in fact when turned in, DUH, the 'buy it' price was WAY
> more than market. Either they were hallucinating on residuals at the time or
> I'm guessing some exec who's bonus was based on total-leasing numbers but
> was headed for retirement just gamed the system to move new metal, hit his
> targets, and screw the long-term consequences (sounds like banking crisis
> and real estate values).  Probably the leases were packed up into CDO's and
> sold by Goldman to Icelandic banks or some shit.
>
>
> Anyway same was true even moreso for the Beemers which were under
> consideration at the time.  I could have bought even 'more' car from BMW on
> the lease than Audi in the sense of 'for same payment would have had a car
> with a higher street price' but the models/optioning/availability didn't
> work out for me/us.
>
>
> We loved that car and might easily have bought it but in the
> corporate-bureaucracy-idiocy-can't-make-it-up, they "couldn't" sell it to us
> for the reality based price that we all knew it would ultimately sell for.
> The leasing/receiving dealer had no incentive to sell it below the
> pre-programmed residual and in fact the guy told me they would be lashed for
> undercutting the contract buy-out price. They get some nominal feel for
> processing the car and wouldn't wear any of the eventual pain of
> depreciation, so they were completely incented to spend Audi's money to
> inspect, clean-up, collect their fee, ship it to the Audi central
> scrutinizer where it would go on the internal dealer lease-bid program, and
> some other dealer would end up getting it shipped to him and finally sold at
> a sensible price.  All that shipping and cost being wasted vs. just selling
> me the car but that's how the system works...
>
> I heard that the OEM's took some haircuts on their lease portfolios in the
> crisis so they might have improved their process such that when they have a
> 'reality check' mechanism, but would be interested if anybody has some
> knowledge of current system.  But on the other hand it would be very OEM
> like to do a calculation that "since 20% of Jane-Doe-soccer-moms who decide
> to keep the leased car will just pay the contract price without checking
> market value, we make more money fleecing those people than the wasted
> shipping turnover for the other cars costs us, so we keep the system"... if
> you can follow that.
>
>
>
>
>
>
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