Another (True) Anectdote - Two New Car Dealers Will Not Lease Cars
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Wife's niece is going for her masters in this Enviromental Engineering stuff.
I suspect it's like an educational degree, very little objective criteria for getting a degree in it.
I would tend to agree with Random.Capital. Leases have had inflated lease residuals for a long time that helped make the lease payment more affordable for the masses. The lenders are wising up and realize now inflating the residual only hurts themselves in the long run so it isnât surprising they are cutting back on leases. Unfortunately, they just arenât as good a deal as they were in the past. Lower residual equals a higher payment.
Also remember, dealers have had zero percent financing so long (especially domestics) that many that would have bought used have bought new because the financing is so favorable. That increases used car inventories, which I am sure as traders we know what increased supply means to prices. Now we are swinging the other way. So as more and more realize they canât lease as much car as they used to for a given price point, they are now heading back to the used car market which is now increasing values some now. Ebb and flow. Ebb and flow.
The fact that some dealers wonât do them now isnât too surprising either. Typical over reaction exactly like we are seeing in the mortgage markets. In other words, even with excellent credit scores, lenders are much more conservative across their whole portfolio of loans than is warranted and are losing business for it. Eventually, things will loosen up again and we will be back to the gold old days. Cycles overreact to both extremes almost always (just like the markets do).
I would also argue that this college student is the perfect person to give a loan to from a lender point of view. If she finances, she is going to need a cosigner (daddy) so now they have two responsible for the obligation. And daddy isnât going to ruin said daughterâs credit just as she will begin to see how important it is when leaving school. They want to get her used to going into debt so we as lenders can make money. Exactly the reason credit card companies target college students so hard, although I believe they are trying to limit that these days somewhat. Young people with future earnings power (at least they used to have it) make good investments that can fall back on mom and dad in many cases, when they almost inevitably overcharge their card, not really understanding money and debt yet and being young and thinking âit will all work out.â Before they know it, they are 30, married, have car debt, home debt, student loan debt and credit card debt and are now stuck in the rat race. A pretty good business model for the lenders/credit card companies. Now I am not going to go into whether I morally agree with that business model, but lets face it, that is the lender and cc companies job to get people to get loans/debt.
Good trading
BM
Also remember, dealers have had zero percent financing so long (especially domestics) that many that would have bought used have bought new because the financing is so favorable. That increases used car inventories, which I am sure as traders we know what increased supply means to prices. Now we are swinging the other way. So as more and more realize they canât lease as much car as they used to for a given price point, they are now heading back to the used car market which is now increasing values some now. Ebb and flow. Ebb and flow.
The fact that some dealers wonât do them now isnât too surprising either. Typical over reaction exactly like we are seeing in the mortgage markets. In other words, even with excellent credit scores, lenders are much more conservative across their whole portfolio of loans than is warranted and are losing business for it. Eventually, things will loosen up again and we will be back to the gold old days. Cycles overreact to both extremes almost always (just like the markets do).
I would also argue that this college student is the perfect person to give a loan to from a lender point of view. If she finances, she is going to need a cosigner (daddy) so now they have two responsible for the obligation. And daddy isnât going to ruin said daughterâs credit just as she will begin to see how important it is when leaving school. They want to get her used to going into debt so we as lenders can make money. Exactly the reason credit card companies target college students so hard, although I believe they are trying to limit that these days somewhat. Young people with future earnings power (at least they used to have it) make good investments that can fall back on mom and dad in many cases, when they almost inevitably overcharge their card, not really understanding money and debt yet and being young and thinking âit will all work out.â Before they know it, they are 30, married, have car debt, home debt, student loan debt and credit card debt and are now stuck in the rat race. A pretty good business model for the lenders/credit card companies. Now I am not going to go into whether I morally agree with that business model, but lets face it, that is the lender and cc companies job to get people to get loans/debt.
Good trading
BM
I also agree with Random Capital.
The crux of the problem is the uncertainty as to what residual values will be come trade-in time, hence it's impossible for many brands to either obtain lending on leases from outside entities, or they're expressing a rational fair of undertaking self-financing, assuming they even have the capital to do so.
This all stems from the great uncertainty over what the economy will do and what it will look like 2, 3 or 4 years from now, that is spilling over into every aspect of business and consumer behavior, and constraining credit flow, consumer spending, cap ex and other forms of consumption and investment.
The crux of the problem is the uncertainty as to what residual values will be come trade-in time, hence it's impossible for many brands to either obtain lending on leases from outside entities, or they're expressing a rational fair of undertaking self-financing, assuming they even have the capital to do so.
This all stems from the great uncertainty over what the economy will do and what it will look like 2, 3 or 4 years from now, that is spilling over into every aspect of business and consumer behavior, and constraining credit flow, consumer spending, cap ex and other forms of consumption and investment.
BMW is leasing 3-Series, 36 months with 60% residual.
BMW and Acura and two of the makes that have the luxury of being able to confidently assess their residuals.
Even in this market; so far.
Electrical (Power Systems) Engineers are in very short supply. She would get a job tomorrow with an EE degree.