Continued from page 38

third party leasing companies.

And that in itself has created
problems over time. Depending on
the financial strength of the third
‘party, situations have arisen where
there have been differently-
‘structured leases available at
dealers in various cities,

Consumers shopping for a
vehicle, not understanding that fees
and costs vary from dealer to
dealer, would be confused.

Seeking to remedy this
situation, BMW has a simple
objective: consistency. Says
Robinson, echoing Kerp: “If
consumers go into a dealership,
‘they will know the price is X, and
the lease is Y, wherever they go.”

. Moreover, BMW has the clout
to fund its operations at a very
competitive rate. “We can use the
leverage of the BMW Group to
provide competitive financing
because of our credit rating. We

" can offer consumers rates that aro
very attractive,” he adds,

The timing of BMW's move
could be advantageous as well,
since the leasing segment of the
industry is enjoying dramatic
growth. Although the so-called fleet
leasing business, where
companies lease cars for their
employees, has consistently
represented between 20% to 25%
of auto industry sales, the retail

_ market, which offers leases to
individuals, has seen the most
growth over the past five years.

‘ “There's been an explosion of
activity,” notes Dennis DesRosiers,
auto industry analyst and president
of Toronto-based DesRosiers
Automotive Consultants Inc. He
estimates that the combined retail
and fleet leasing business
represents almost 40% of total
vehicle sales, Moreover, he
‘estimates the retail lease business
is growing at 10% a yeai:

DesRosiers says a variety of
faciors explain why in a few short
years “you have ordinary Joe
Consumer leasing a vehicle rather
than financing it or paying cash.”

Fora start there's affordability.

Although after-tax persona!
incomes have stayed flat for the
past few years, the cost of vehicles
has risen, largely due to
government taxes and regulations.
Currently, he says, the cost of a car
represents 27.4 weeks of after-tax
eamings. A decade ago, it was
21.4 weeks, Consumers are
looking at financing altematives,

Consumers are also living with
all-time high levels of debt, while
the availability of credit has been
restricted. Strictly speaking, feasing
a vehicle doesn't involve taking on
debt, since the asset is owned by
the leasing organization. So it's a
way to get easier approval for
purchasing a vehicle. -

“i's hard to
imagine why a
fuxury fcar]
owner would
want to buy a
vehicie any
other way.”

Additionally, vehicle
manufacturers have come up with
better leasing products. A variety of
leases in the marketplace have
residual value, — the market value
of the vehicle at the end of the
Jease — dropping at three and four
years, compared to the traditional
five years. As well, there's more
flexibility on lease termination and
more clarification of leasing terms
and conditions.

Leasing does lower
consumers monthly payments as
well, “You're only financing the
difference between the price of the
vehicle and its resaie value in three

or four years,” points out
DesRosiers. “So, generally, you're
financing only about 60% of the car,
instead of 100%.”

That means leases have
much lower monthly payments.

Over the past decade
consumer focus groups have
indicated that the idea of buying a
vehicle on a monthly payment
basis have interested them even
more than the overall cost of the
car, he adds.

Manufacturers are also
promoting leases for a number of
reasons. Since they're
knowledgeable about residual
values, they can make more money
at the end of the lease than can the
average consumer. Secondly,
because there's no requirement to
disclose the interest rates in the
contract, some manufacturers can
add one percentage point or more
to the lease and thus improve their
profit margins. Third, once the
consumer is committed, carmakers
can track the vehicle for direct
marketing purposes. “You can get a
higher loyalty rate and better resale
value,” he notes.

Add up all these factors, says
DesAosiers, and it's clear why car
manufacturers “have moved big
time into advertising and promoting
leases they offer through their own
leasing companies or third parties.”
Meanwhile, most dealers have
leasing advisors to help consumers
through the complexity of a lease.

DesRosiers believes that
leasing activity is also especially
intense at the luxury end of the
market. That's because these
consumers tend to own their
vehicles for a shorter period of time
than consumers at the low and
middie portion of the market.

“The shorter the purchase
cycle, the more advantageous
leasing is for the consumer” says
DesRosiers, adding that a typical _
luxury owner will trade his vehicle
every three or four years. “So, it's
possibly the perfect financing
product. It's hard to imagine why a
luxury owner would want to buy a
vehicle any other way.”

Wednesday, June 15, 1994 - North Shore News - 29

OPEN-END LEASE: A loase agreement in which the lessee, or
cllent of the leasing company, assumes financial responsibility for the
difference between the estimated wholesale value of the vehicle and
the proceeds of its sale at the end of the lease.

CLOSED-END LEASE: A lease agreement in which the lessor, or
leasing company, assumes financial responsibility for the diffarence
between the depreciated value of the vehicle and Its actual cash value

at the end of the lease.

MONTHLY PAVRENRR The amount tha lessee pays each month,
which is a combination cf depreciation of the vehicle and the cost of

money.

RESIDUAL VALUE: The predicted market value of the leased ,

vehicle at the end of the lease.

CAPITALIZED COST: The cost of the vehicle as determined by the

leasing company.

EXCESS KILGMETRE CHARGE: A charge per additional
kilometre that the consumer must pay when the vehicle is driven
beyond the agreed upon nuraber of kiometres.

‘To be sure, luxury car owners
are a discriminating lot, not only by
being particular about automotive -
styling, status and safety features,
but in getting vaiue for their money.

Cognizant of this, BMW is
applying the same value-oriented
approach to leasing that it has used
in establishing itself as a leading
seller of luxury cars in Canada.

Says Robinson: “Presenting to
the consumer a full value package,
that covers them at the time they
sign the lease and at the time it
expires, is long-term, a more stable
approach to the market.”

Indeed, there are host of
reasons why consumers, who are
encouraged to shop around
carefully, may end up back at

‘BMW. As Kerp points out, there are

many advantages associated in
dealing with the company:

@ Since BMW offers closed-end
leases, it guarantees the
residual value. In short, it
assumes all the risks, the
consumer has none. in an
open-ended lease, which is
offered by competitors, the
consumer is on the hook
it does not charge a
disposition fee, often around
$500, to cover administrative
costs associated with the
termination of the tease.

@ Termination fees are low or
non-existent. The minimum

fee is two monthly payments if .

a consumer terminates the
lease within the first 12
months. There's no early
termination fee after 12
months if a consurner is
leasing another BMW.

Little or no up-front cash is
necessary. In comparison,
some companies insist on a
hefty down payment.

@ Contracts can be extended at
lease maturity. If a consumer
has a financial problem at the
end ci a three-year lease, or
doesn't want to lease anather
new car, he can have the

lease extended. Many

competitors don't offer this

feature.

@ BMW offers national coverage.
In the event of a job transfer to
another p:ovince, consumers
can take their venicle with
them and reregister it in
another jurisdiction. Many
competiny leasing companies
are licensed to only operate in
one province and there are
possible negative
consequences if the
consumer has to move. °
These advantages may help

gamer BMW more leasing
business and exceed its present
level of 35% of all vehicles sold. But
Kerp admits that she isn't in a hurry
to match the 60% rate achieved by
its American counterpart. “Our
goals are not only quantitative. We
want to offer qualitative leases, .
cater to customer needs and look
at the market requirements.”

Robinson echoes that
sentiment. He wants to create a
positive atmosphere so that
consumers, dealers and
manufacturer all emerge as
winners.

“What is the total package
going to jook like? How do we
eliminate hidden fees?” he asks.
“We look at it fom the perspective
of the end of the lease. What's the
consumer going to face?”

And just to show it believes
that an informed consumer is «
beneficial for all sides of the
relationship, BMW Canada is
developing a consumer brochure
entitled How to Look at a Lease.

“Let's tell him or her all the fine
points,” says Robinson. “Let's
chatienge him or her, just as we do
wiih the quality arid engineering of
our cars, We're saying:

‘Go out, look at ours and look
at sorneone else's. See where
BMW stacks up. We're definitely
confident we'll stack up on the
positive side of the equation and
bring customers in.”

~.