Blog posts by Tom Libby

Don't Believe Everything You See

Retail Lease PenetrationHave you ever been driving on a highway, noticed how many BMW, Mercedes-Benz and Audi vehicles there are, and wondered how so many people have the money to buy all those fancy cars? (I have.) Well, in many cases the drivers may not have the money because they don't own the cars!

Industry-wide, leases comprise about a fifth of all new vehicle registrations, but within the luxury market, lease penetration is more than twice as high at 45%. Three premium makes: BMW, Infiniti and Mercedes-Benz, actually have national lease rates at or above 50%.

Furthermore, several popular compact premium cars have lease rates above 60%, with the Mercedes-Benz C-Class approaching 70%. Leasing is not limited to smaller vehicles, as all five of the leading large premium sedans have lease rates above 50%. Two of every three 7-Series are leased.

In the two largest metropolitan areas, New York and Los Angeles, leasing is substantially more popular than in the rest of the country. Almost two thirds of all premium vehicles registered in the New York metropolitan area are leased, and almost as many in LA. More than two thirds of most small premium cars registered in these two metropolitan areas are leased, and we see similar results for the large premium sedan category.

These extraordinarily high lease results lead to several conclusions. First, the price of the vehicle is not the be-all and end-all. Rather, the monthly lease payment is a crucial factor. The monthly payment is not completely linked to the price, as the OEM and dealer have several tools by which to manipulate the monthly payment; these include, among other things, artificially raising the forecasted residual amount and increasing/decreasing the up-front lease payment. Second, if your premium make is not in the leasing business, you need to get there right away. Lastly, your lease rates, residuals and drive-away costs need to be competitive.

Posted by Tom Libby, PolkInsight Advisor, Polk (08.01.2011)

Comments for Don't Believe Everything You See

Monday, August 1, 2011 by michaeljAudiDTLA
Tom,
The article was very informative. What do you think drives these high lease percentages? I have an idea as to the correlation between high lease percentages in L.A. and New York. It would be cool to find out who the leasing customer is and why they lease rather than buy...
Monday, August 1, 2011 by Richard
The leasing customer is typically one who cares more about how they are perceived than how "well off" they really are. In other words, they are all show and no dough and live far above their means. They equate having things or the perception of doing well over owning anything. They ask, "How much is the monthly payment?" rather than, "Can I pay for this purchase in cash?" Why do you think this country as a whole is paying the piper right now? People would rather look good today trying to impress people they don't even like than save their money for a rainy day(today) and have true freedom. Dave Ramsey said it best, "If you will live like no one else today, later you can live like no one else".....
Tuesday, August 2, 2011 by R
Tom,
Any chance you can share the leasing data for the Chicago DMA. When I look at what folks are driving, I've also wondered "how do so many people afford these vehicles?".
Thanks!
Tuesday, August 2, 2011 by JEM
Leasing is a great option if you plan on getting a new car every few years and you put a lot of miles on your car. I personally lease because of the amount I drive a year and the fact I can usually buy a maintenance program with the vehicle. I then know the full cost of the vehicle per month for the length of time I have it, usually 3 years (vehicle usually stays under warranty for the length of time I have it and with the maintenance program oil changes etc… are all included) also if you are a business owner you can write off the full amount of a lease for taxes rather than the depreciated value of the car over years. If you plan on driving a car 5 years or more then you should buy but if you put a lot of miles on a car and do not want it to ever be out of warranty and like myself get bored with cars rather quickly (and don’t forget if you really like the car you can always buy it from the leasing company), then leasing is a great option.
Friday, September 16, 2011 by patrick
@Richard: Wow, that's a lot of assumptions to make from one bit of info, but the reason for your cranky TP perspective is revealed in your "whole country paying the piper" sentence. My advice to you is to turn off the right-wing radio and cheer the heck up. Some people just want a nice car, and they want a new one every couple of years. It often makes financial sense to lease. It's called the efficient use of capital.

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