Industry News: Luxury Automakers Are Having Headaches With Selling Lease-Return Sedans

[William Maley]

Luxury automakers have been taking full advantage of the high-demand for SUVs and crossovers and raking in the dough. But as Neuton's third law of physics tells us, "for every action, there is an equal and opposite reaction." In the case of luxury automakers, they have a number of sedans and coupes from lease turn-ins that they cannot sell.

“It’s not necessarily the overwhelming amount of vehicles, it’s the mix of those flood of vehicles. You’re throwing all these cars into the marketplace a couple years after it has evaporated and jumped into SUVs,” said Scott Keogh, president of Audi of America to Bloomberg.

This puts a lot of strain on luxury automakers as there is too much supply and not much demand, causing the value on used cars to fall. In turn, automakers have to raise the prices on leases to make up for the amount of depreciation over the term of the lease. It will cause consumers to be priced out of marketplace or automakers to offer generous incentives on leases. For luxury automakers, this is a big problem as they rely on leasing more than mainstream brands. According to Autodata, most luxury brands have increased incentives on their cars through the first nine months of the year.

• Audi: $4,696 (up $314)
• Lexus: $5,323 (up $296)
• Mercedes-Benz: $6,732 (up $289)

So if you find yourself wanting a luxury sedan or coupe, now might be the best time to score a really good deal.

Source: Bloomberg

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[Drew Dowdell]

That's fine Benz or Cadillac.... lower the prices of the CPO models and send me the links.

 

[G. David Felt]

Mercedes-Benz has been living for years on leases rather than sales. As such so many badge snobs have leased the MB auto to pretend to have money and as such MB is about to feel the pinch of having a glut of low mileage used cars sitting around that will cause car buyers to get great deals as they move to unload and dump them.

This makes me wonder how the next few years will play out as we go into a depression as I suspect many people are going to wait for the EV auto's to hit the market and then reduce maintenance cost, fuel cost, etc. at they change from ICE to EV auto's.

For those that have to buy an auto, if you shop right I bet you can get a good deal, for the rest of us, we will wait a couple more years.

[smk4565]

1 hour ago, Drew Dowdell said:

That's fine Benz or Cadillac.... lower the prices of the CPO models and send me the links.

 

Agreed, I hate SUVs and want a car, and I like used cars because the depreciation hit is gone. 

This isn't just for luxury brands, any car lease at any brand is probably taking a hit.  What is a 3 year old Taurus worth?  The $99 a month leases I have seen on the Cruze, they have to be taking a bath on those, a 2015 Cruze is probably worth $10k now.

[Drew Dowdell]

CPO 3.0TT CT6 look really attractive right now.

[G. David Felt]

1 hour ago, Drew Dowdell said:

CPO 3.0TT CT6 look really attractive right now.

Agreed, when you see new current Premium at $80K and Luxury at $70K then you look at CPO and I find 3 at my local Cadillac dealer:

2017 CT6 2.0T Luxury, 2,561 miles for $54,299

2017 CT6 2.0T Luxury 11,880 miles for $53,244

2016 CT6 3.0T Premium, 13,997 miles for $49,283

Amazing deals found on Autotrader.

[surreal1272]

2 hours ago, smk4565 said:

Agreed, I hate SUVs and want a car, and I like used cars because the depreciation hit is gone. 

This isn't just for luxury brands, any car lease at any brand is probably taking a hit.  What is a 3 year old Taurus worth?  The $99 a month leases I have seen on the Cruze, they have to be taking a bath on those, a 2015 Cruze is probably worth $10k now.

Your last paragraph is pure deflection since the percentage of leased Benz models is much higher than anything from Chevy or any other mainstream maker. 

[smk4565]

26 minutes ago, surreal1272 said:

Your last paragraph is pure deflection since the percentage of leased Benz models is much higher than anything from Chevy or any other mainstream maker. 

It is, and all the off lease SUVs they have are probably getting a good return since SUVs are in high demand.

[surreal1272]

26 minutes ago, smk4565 said:

It is, and all the off lease SUVs they have are probably getting a good return since SUVs are in high demand.

Again deflection as they now have cars that are filling up their used lots and going nowhere. 

[regfootball]

2 hours ago, dfelt said:

Agreed, when you see new current Premium at $80K and Luxury at $70K then you look at CPO and I find 3 at my local Cadillac dealer:

2017 CT6 2.0T Luxury, 2,561 miles for $54,299

2017 CT6 2.0T Luxury 11,880 miles for $53,244

2016 CT6 3.0T Premium, 13,997 miles for $49,283

Amazing deals found on Autotrader.

those will be 10 grand cheaper in six months

[regfootball]

1 hour ago, surreal1272 said:

Your last paragraph is pure deflection since the percentage of leased Benz models is much higher than anything from Chevy or any other mainstream maker. 

when i leased our malibu (i never wanted to lease again) the dealership told me 65% of their new business was leasing now.  

[Drew Dowdell]

5 minutes ago, regfootball said:

when i leased our malibu (i never wanted to lease again) the dealership told me 65% of their new business was leasing now.  

It's the only way most people can get the car they want these days. Note, I didn't say afford... because if they could afford it, they wouldn't be leasing. 

The problem is that so many people have E-class tastes but a Cruze LT budget, so even if they split the difference and get Accord V6, it's still a big stretch for them financially and they end up leasing.

The only reason we leased our Buick is that at the time we had different life plans and expected to need to be out of it in 2 years.  The next vehicle will be a CPO or used.

[surreal1272]

39 minutes ago, regfootball said:

when i leased our malibu (i never wanted to lease again) the dealership told me 65% of their new business was leasing now.  

See Drew’s response and add in the fact that it has been a staple of Benz and BMW for decades now whereas the domestic trend is much more recent. 

[smk4565]

48 minutes ago, Drew Dowdell said:

It's the only way most people can get the car they want these days. Note, I didn't say afford... because if they could afford it, they wouldn't be leasing. 

The problem is that so many people have E-class tastes but a Cruze LT budget, so even if they split the difference and get Accord V6, it's still a big stretch for them financially and they end up leasing.

The only reason we leased our Buick is that at the time we had different life plans and expected to need to be out of it in 2 years.  The next vehicle will be a CPO or used.

Agreed with this and REG.  People want a new car, they have a $300 or so a month budget, they look at the cost to buy a Camry, are shocked that is $30,000 and the options are low mileage lease, or take out and 75 month car loan.  So either they have no car after 3 years and probably owe mileage overage on mileage or they have a car loan in which they pay the car off much slower than it depreciates.

And both reasons are why a used or CPO is a good option.  And I think the desire to have a crossover only amplifies it, people want a crossover, and even an Escape or Rogue is $30,000 now, on a traditional 4 year car loan is $540 a month, so they go to to those 75 month loans.  People need to shop more within their means.

[surreal1272]

5 minutes ago, smk4565 said:

Agreed with this and REG.  People want a new car, they have a $300 or so a month budget, they look at the cost to buy a Camry, are shocked that is $30,000 and the options are low mileage lease, or take out and 75 month car loan.  So either they have no car after 3 years and probably owe mileage overage on mileage or they have a car loan in which they pay the car off much slower than it depreciates.

And both reasons are why a used or CPO is a good option.  And I think the desire to have a crossover only amplifies it, people want a crossover, and even an Escape or Rogue is $30,000 now, on a traditional 4 year car loan is $540 a month, so they go to to those 75 month loans.  People need to shop more within their means.

“People need to shop within their means”

 

While true, here’s the other side of that coin. 

 

“Car prices are too damn high to begin with”. 

[smk4565]

9 minutes ago, surreal1272 said:

“People need to shop within their means”

 

While true, here’s the other side of that coin. 

 

“Car prices are too damn high to begin with”. 

Car prices are really high, but consumers keep finding a way to pay for them, so car companies like the high prices.

This is why I hate how every car company wants to move up market and put on more content.  Nothing wrong with a car selling a basic model if you are a Chevy or Kia sort of brand.

[riviera74]

29 minutes ago, smk4565 said:

Car prices are really high, but consumers keep finding a way to pay for them, so car companies like the high prices.

This is why I hate how every car company wants to move up market and put on more content.  Nothing wrong with a car selling a basic model if you are a Chevy or Kia sort of brand.

Who wants to BUY a base model anything these days, let alone lease a base model?

[Drew Dowdell]

11 minutes ago, riviera74 said:

Who wants to BUY a base model anything these days, let alone lease a base model?

 

That's the problem, people have tastes higher than their budget of affordability.  Add to that people are unwilling to buy used or CPO. They'd rather lease, which is usually a bad financial decision.

[smk4565]

53 minutes ago, Drew Dowdell said:

 

That's the problem, people have tastes higher than their budget of affordability.  Add to that people are unwilling to buy used or CPO. They'd rather lease, which is usually a bad financial decision.

Correct.  I imagine a lot of these 3 row crossovers fall into that category.  Because the average family probably can't afford a $45,000 Traverse or Pilot, unless in a lease or 75 month loan, and are they going to own that car in 7 years after purchase to see that loan through?

I work in a bank, I just refinanced a car loan for a 2016 Chevy Sonic that was a $19,500 loan and the car is currently worth $10,100 (we use 125% of NADA wholesale), so we had to use a personal loan to pay the rest off.  The guy was so far under water because he rolled an underwater loan (form a Ford focus he bought new with a defective transmission) into the Sonic, put no money down, took the loan out for 6 years at a high rate and took out an extended warranty and financed it in too.   And this is a sort of common occurrence. 

And to boot, his payment was $110 a month more on his Chevy Sonic than I pay on my Mercedes E550.  I was able to save him $25 a month, not a lot but that's $300 a year, for 5 years, adds up.

1 hour ago, riviera74 said:

Who wants to BUY a base model anything these days, let alone lease a base model?

Well I am not talking about crank windows and 1999 Chevy Cavalier build quality.  But what is wrong with the Cruze being $16k base and like $22k loaded?  Why are there $28,000 Cruze's ?  Why are they trying to make it like the Jetta TDI premium, what is wrong with just being a basic simple car?  Doesn't mean it has to be crap.  

[regfootball]

i had never wanted to lease again but i have 2 leases now.  My Malibu lease is 235 a month for 15,000 miles so i look at that as a rental.  I would have had to finance 25 grand plus (500-550 payment) for the same car.  It was not a car as a second family car that i want to keep long term.  I view it as a go to work expense.  If i financed, i'd be underwater until year 4 probably.  After 5 years i probably don't want the car anymore.  By then I might be able to trade it in for 4,000.  that becomes a pretty expensive savings account.  In the meantime i take the per month difference and pay down other debts i need to work on.  I probably could have bought a Ford Fusion S or SE and been able to stay within 100 bucks a month of that 235 on a purchase.  But at some point i'd want a little nicer car than those price leader trims that are actually well priced but really do remind you of what you paid with the basic cloth seats and lack of power seats etc.

The van lease was a little bit different.  It was partially due to shocking prices.  I didn't think i would want to own a Chrysler long term.  I feel like i spent a lot of money for no return but at the same time i am not stuck with something i did not want to own.  I sort of want to just ride it hard and put it away wet.  If the kids were out of the house i might want to buy something like a Ford Edge SE or SEL, something that will hold value a bit more.  Or, i don't like pickups but generally if you buy a pickup at model year end prices, they will hold value pretty well too.  Or some three row crossovers do.  I kind of wanted to drive a van once but i didn't really have interest in being a 'van owner'.

Right now trying to decide if lease or buy on something new and will look at CPO too.  Before the last couple leases I always tried to find 1-3 years old and under 15-20k miles.

Edited November 3, 2017 by regfootball

[Drew Dowdell]

My next purchase is one for me and will be something that went out of production after 2013.  Albert gets his Encore replacement after I get my new to me car. I've suffered long enough with the CR-V..... though neither of us drive much anymore. He takes the bus to work and I work from home. 

[daves87rs]

3 hours ago, riviera74 said:

Who wants to BUY a base model anything these days, let alone lease a base model?

Me!!!

[daves87rs]

1 hour ago, Drew Dowdell said:

My next purchase is one for me and will be something that went out of production after 2013.  Albert gets his Encore replacement after I get my new to me car. I've suffered long enough with the CR-V..... though neither of us drive much anymore. He takes the bus to work and I work from home. 

One of the reasons we want to add to our fleet...been driving my Cobalt since 2008.....something newer would be nice. Though it is hard to own something long term here-as the salt eats these cars alive here. Both of our cars...no matter how much washing and prepping they get-are rusting up. (granted , my other car spends winter in the garage-no rust there) So you almost need a winter beater here in order to have a nice car....

I figure either an out of state used car or a left over new Cruze could be a good choice...

[G. David Felt]

46 minutes ago, daves87rs said:

One of the reasons we want to add to our fleet...been driving my Cobalt since 2008.....something newer would be nice. Though it is hard to own something long term here-as the salt eats these cars alive here. Both of our cars...no matter how much washing and prepping they get-are rusting up. (granted , my other car spends winter in the garage-no rust there) So you almost need a winter beater here in order to have a nice car....

I figure either an out of state used car or a left over new Cruze could be a good choice...

Compare lease rates on various auto's or CPO as right now plenty of good deals to be had.

[surreal1272]

13 hours ago, smk4565 said:

Car prices are really high, but consumers keep finding a way to pay for them, so car companies like the high prices.

This is why I hate how every car company wants to move up market and put on more content.  Nothing wrong with a car selling a basic model if you are a Chevy or Kia sort of brand.

People are leasing is why they are “finding a way”. We just established that. Why finance a car that can touch the same monthly price as my mortgage when I can lease it and be done with it after three years? 

 

This is why I will never buy another brand new car ever again. This nonsense has to come to a head at some point. 

[Drew Dowdell]

15 minutes ago, surreal1272 said:

People are leasing is why they are “finding a way”. We just established that. Why finance a car that can touch the same monthly price as my mortgage when I can lease it and be done with it after three years? 

 

This is why I will never buy another brand new car ever again. This nonsense has to come to a head at some point. 

This is the new bubble and I'm right there with you.  I've been in my house 15 years and I've paid it down so much that there are used mid-range luxury cars out there that exceed the outstanding balance on my mortgage. 

[ccap41]

18 hours ago, dfelt said:

Agreed, when you see new current Premium at $80K and Luxury at $70K then you look at CPO and I find 3 at my local Cadillac dealer:

2017 CT6 2.0T Luxury, 2,561 miles for $54,299

2017 CT6 2.0T Luxury 11,880 miles for $53,244

2016 CT6 3.0T Premium, 13,997 miles for $49,283

Amazing deals found on Autotrader.

Great deals but I'd want to wait another year for even more heavy depreciation. Those first few years depreciate really bad. Plus, what's the diference between 12,000 miles and 30,000 miles? Nothing, imo. 

17 hours ago, surreal1272 said:

Again deflection as they now have cars that are filling up their used lots and going nowhere. 

I'd gladly take one of them off their hands! C400 would be nice. 

15 hours ago, surreal1272 said:

See Drew’s response and add in the fact that it has been a staple of Benz and BMW for decades now whereas the domestic trend is much more recent. 

That's not a bad thing, I don't think... If anything, it brings them more cash as a "double sale". I'd think fleet sales would be more detrimental to a company than leases. 

[ccap41]

15 hours ago, surreal1272 said:

“People need to shop within their means”

 

While true, here’s the other side of that coin. 

 

“Car prices are too damn high to begin with”. 

I can't agree enough with this. 

[ccap41]

15 hours ago, smk4565 said:

Car prices are really high, but consumers keep finding a way to pay for them, so car companies like the high prices.

This is why I hate how every car company wants to move up market and put on more content.  Nothing wrong with a car selling a basic model if you are a Chevy or Kia sort of brand.

Because loan companies keep extending loan terms. 60 months was long at one point. Now there are some 96 month auto loans!! NINETY SIX MONTHS!!!  That thing is depreciating waaaaay faster than the owner is paying it off and then they get conned into GAP coverage too.

[Drew Dowdell]

1 hour ago, ccap41 said:

That's not a bad thing, I don't think... If anything, it brings them more cash as a "double sale". I'd think fleet sales would be more detrimental to a company than leases. 

That's kinda what this article is talking about.   Excessive leasing is starting to hurt them at the back end of the transaction.  They are writing artificially cheap leases and then when the lease is done, the asset it worth less than what the lease was written for even at full retail.   However, they are finding themselves unable to stop because they've hooked those customers on the crack of cheap leases. If they adjusted their leases for reality, lease prices would go up and sedan sales would drop even further than they already have. 

[balthazar]

Brand new vehicles, whether bought or leased, make no financial sense whatsoever.
Sure BFN is nice... but it's not worth the money spent/lost- regardless of brand or model.

Unless of course, money is of no object.

[Drew Dowdell]

5 minutes ago, balthazar said:

Brand new vehicles, whether bought or leased, make no financial sense whatsoever.
Sure BFN is nice... but it's not worth the money spent/lost- regardless of brand or model.

Unless of course, money is of no object.

This.

For what he wants to drive, I defer to him on picking out a car.  I present him with options based on his criteria and he can pick from them.  Last night he said to me "I'm not getting a used car.".  And that's where I corrected him.  Whatever we get will be a CPO or used with a good warranty. 

[G. David Felt]

2 hours ago, ccap41 said:

Because loan companies keep extending loan terms. 60 months was long at one point. Now there are some 96 month auto loans!! NINETY SIX MONTHS!!!  That thing is depreciating waaaaay faster than the owner is paying it off and then they get conned into GAP coverage too.

8yrs is just crazy for an auto loan. My parents taught me to save and then buy what you want, no instant gratification as it does not help you except to load you up with debt.

[ccap41]

1 minute ago, dfelt said:

8yrs is just crazy for an auto loan. My parents taught me to save and then buy what you want, no instant gratification as it does not help you except to load you up with debt.

I can't agree more! 

[regfootball]

17 hours ago, daves87rs said:

One of the reasons we want to add to our fleet...been driving my Cobalt since 2008.....something newer would be nice. Though it is hard to own something long term here-as the salt eats these cars alive here. Both of our cars...no matter how much washing and prepping they get-are rusting up. (granted , my other car spends winter in the garage-no rust there) So you almost need a winter beater here in order to have a nice car....

I figure either an out of state used car or a left over new Cruze could be a good choice...

I want to commend you on surviving Cobalt ownership for so long.  I sold our Cobalt a few weeks ago finally, our 2010.  I think 7 1/2 years of Cobalt ownership is enough life punishment for awhile.  In the Cobalts defense.  I paid 10,400 for it new.  Sold it for 3,400.  Aside from oil changes, and 2 sets of tires, i only put new headlights in it, paid for a new ignition lock, and power window motor and regulator.  Never did brakes once.  My total ownership cost from depreciation and maintenance was about 100 bucks a month.  I guess the tradeoff for having the Cobalt was very low cost. 

But the Cruze will be a huge upgrade!

5 hours ago, Drew Dowdell said:

That's kinda what this article is talking about.   Excessive leasing is starting to hurt them at the back end of the transaction.  They are writing artificially cheap leases and then when the lease is done, the asset it worth less than what the lease was written for even at full retail.   However, they are finding themselves unable to stop because they've hooked those customers on the crack of cheap leases. If they adjusted their leases for reality, lease prices would go up and sedan sales would drop even further than they already have. 

gotta keep factories running

[smk4565]

5 hours ago, Drew Dowdell said:

This.

For what he wants to drive, I defer to him on picking out a car.  I present him with options based on his criteria and he can pick from them.  Last night he said to me "I'm not getting a used car.".  And that's where I corrected him.  Whatever we get will be a CPO or used with a good warranty. 

There are millions of people out there conditioned to believe any used car has problems, and only a new car is reliable.  This is how car companies sell a lot of new cars.  The average car on the road is 11 years old, makes me think a lot of cars last 20 years, in which case even a 5 year old car, has 15 more left in it.

[balthazar]

^ And those millions of people just avoid used German cars. ;P

A three yr old off-lease car is still brand new (provided it doesn't have 90K miles on it).

[daves87rs]

21 hours ago, dfelt said:

Compare lease rates on various auto's or CPO as right now plenty of good deals to be had.

True....leases on some of the sedans (like the Malibu and Cruze) are pretty good...and I expect to get better (just not crazy better)

[Drew Dowdell]

The lease would have to be exceptionally cheap for me to consider it these days. I don't want to have permanent car payments. I just want something I can buy and keep for a long while.

[ocnblu]

My mom's lease is up in March on her 2015 Versa Note.  She's been pestering me about getting into a new car when the lease is up on this one.  She loves the Note for its combination of economy, ease of ingress/egress, and cargo room for hauling her lawn clippings.  She said she wants a 2018 Versa Note in Monarch Orange with tan interior.

The 2018 Versa Note has fewer variations.  The last Monarch Orange Note was built in June 2017.  The last Note with tan interior was built in May of 2017.  So Nissan will not be building her "attainable dream car".

Her 2015 has a little over 9k miles on it.  Best thing for us to do now is, I'm thinking, transfer the contract to a buy, with enough money added to keep her payments at the level of her lease, or a little lower.

She brings up the thing about maintenance, and a lease car has free oil changes, etc... but leasing into perpetuity is a vicious cycle, imo... I am going to need to figure this out soon.  I am currently leaning against another lease.  She's just turned 73.

[Drew Dowdell]

With so few miles it is likely best to buy it out.

[A Horse With No Name]

On 11/2/2017 at 4:53 PM, surreal1272 said:

Your last paragraph is pure deflection since the percentage of leased Benz models is much higher than anything from Chevy or any other mainstream maker. 

Quoted For Truth.

On 11/3/2017 at 6:41 PM, balthazar said:

^ And those millions of people just avoid used German cars. ;P

A three yr old off-lease car is still brand new (provided it doesn't have 90K miles on it).

...even a German car in this situation can be a decent buy.

On 11/4/2017 at 8:52 AM, Drew Dowdell said:

With so few miles it is likely best to buy it out.

Ohhh absolutely.

Not sure how we went from used Luxury sedans to the Versa Note though. Probably a Luxury sedan for those in Uzbekistan...

On 11/3/2017 at 12:20 PM, Drew Dowdell said:

That's kinda what this article is talking about.   Excessive leasing is starting to hurt them at the back end of the transaction.  They are writing artificially cheap leases and then when the lease is done, the asset it worth less than what the lease was written for even at full retail.   However, they are finding themselves unable to stop because they've hooked those customers on the crack of cheap leases. If they adjusted their leases for reality, lease prices would go up and sedan sales would drop even further than they already have. 

This is the model of operation for BMW.  It is also why they engineer such high repair costs into their cars....keep the sheep coming back.

[frogger]

I would stretch the car budget and get a CPO of this if it were available up here

 

 

Edited November 7, 2017 by frogger