Bayerische Motoren Werke AG, the
world's largest maker of luxury vehicles, is increasing
incentives to purchase cars as a way to reduce reliance on leases
that make up 60 percent of its U.S. sales.
The automaker several weeks ago began offering buyers
0.9 percent loans of as long as five years, said Jan Ehlen, a
spokesman for its U.S. unit in Woodcliff Lake, New Jersey. BMW
also raised its lease prices an average of 3 percent on May 1.
``We are offering a broader variety of purchasing options,''
Ehlen said today in an interview. ``One of the intentions is to
have a more balanced relation between financing and leasing,'' he
said, adding that Munich-based BMW doesn't have a target figure.
BMW's changes reflect the effect of rising lease costs on
luxury-vehicle sellers. The company's push began after it booked
first-quarter costs of 236 million euros ($373 million) because
of bad debts and lower values of vehicles in the U.S. when leases
end. Other automakers and some banks are dropping or reducing
leases, and Ford Motor Co. last week took a $2.1 billion pretax
writedown on the value of such contracts for its trucks.
Group 1 Automotive Inc. Chief Executive Officer Earl
Hesterberg said yesterday in an interview that BMW's incentive
program was designed to wean customers from leasing and that he
expected other makers of luxury vehicles to take similar action.
Group 1, the fourth-largest U.S. auto retailer, owned 11 BMW
franchises at the end of 2007.
Charles Oglesby, CEO of retailer Asbury Automotive Group
Inc., told analysts on a call today that the pullback on leasing
``will have some impact on the luxury side of the business.''
Higher Lease Percentages
Makers of luxury vehicles typically get a higher percentage
of sales from leases. About 20 percent of U.S. new-vehicle sales
were leases this year through July 20, according to J.D. Power &
Associates. The market-research firm's Power Information Network
said such contracts were 55 percent of sales at Daimler AG's
Mercedes-Benz, 43 percent at Toyota Motor Corp.'s Lexus and 42
percent at General Motors Corp.'s Cadillac.
Automakers, banks and finance companies are seeing declining
values when vehicles, particularly large pickup trucks and sport-
utility vehicles, are returned when leases end. Manheim
Consulting, a provider of data on used cars and trucks, said on
July 8 that the value of U.S. used vehicles fell 6.2 percent in
June, the eighth straight month of decline.
Banks, struggling with losses from the sub-prime mortgage
crisis, also are charging higher interest rates for leases
because they are riskier than auto purchase loans.
Chrysler, GMAC
Chrysler LLC said on July 25 that its finance arm will stop
offering vehicle leases Aug. 1. JPMorgan Chase & Co. said
yesterday that it no longer will provide leases on Chrysler
vehicles starting the same day.
GMAC LLC, 49 percent owned by GM, will stop offering leases
with incentives in Canada on Aug. 1, while continuing them in the
U.S. GMAC spokeswoman Gina Proia said the auto-finance unit
hasn't announced any changes in U.S. programs for leases with
incentives.
Ford told some U.S. dealers this week that it will boost
prices on leases for large pickups and SUVs.
Toyota's Lexus hasn't changed its position on leasing and
has no effort similar to BMW's, spokesman Greg Thome said.
Daimler's lending unit, Daimler Financial, hasn't altered
its stance on leasing in the U.S., spokesman Jack Ferry said. Of
Mercedes-Benz sales the unit handles, three-quarters are leases.
Volkswagen AG's VW Credit hasn't pulled back on leasing for
its Audi luxury brand, Audi spokesman Christian Bokich said.
To contact the reporter on this story:
Mike Ramsey in Southfield, Michigan, at
mramsey6@bloomberg.net
via bloomberg
