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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: E_K_S who wrote (54777)	1/15/2022 12:45:16 PM
From: robert b furman	Read Replies (1) \| Respond to of 69852

Hi E_K_S, In our rural local, we might do 5 leases a year. The mileage retrictions associated with leasing is prohibitively expensive in our market. Lease returns happen upon expiration of the lease. 12 month minimum and 36 more common. There are commercial trac leases for higher mileage applications and that depreciates the vehicle faster. Sometimes and not often business owners will write a high mileage 24 month lease, then buy the vehicle at the end of the lease, with much fewer miles on the vehicle and basically drive it for next to free. The initial 24 month lease is paid for by the business, and then the vehicle adds another two years of limited mileage. The vehicle is then sold and a low cost ownership of a nice vehicle is accomplished. That kind of lease is called a track lease and is very uncommon, but done by business owners who expend the high mileage lease through the company they own. The increased cost of the lease is expensed by the company. This kind of lease usually has specific purchase agreement at the end of the term. Very rare, but out there. The usual lease is underwritten by the OEM captive finance arm. These have the high mileage penalties. They used to be able to be bought by the dealer who it is turned into. That was a courtesy allowed, as the dealer was completing a condition report to the company that wrote te lease. That has pretty much gone away. The auction sends their wrecker provider to the dealer, picks it up, gives it a reconditioning report to the lease company, who authorize the level of work to be completed and then sold at a Closed franchise dealer auction if no body work is needed or done during the lease period. If there was a body repair needed or in its history, it would be auctioned to the independent used dealer auctions. There are two big national auction groups: ADESSA and MANHEIM (owned buy Cox). That being said there are some very good independent auctions, but they have been mostly rolled up by now. Very few lease returns become available to the public. The new car dealer franchise frankly pay more for their own brand. The lease companies know that. If you have the ease through the captive finance company Ford Credit of GMAC, they allow the new car dealers to exclusively bid on the units of their specific franchise only, unless there is a car fax record of a serious accident/repair. Unwinding a lease almost never happens. A lease has a depreciation component and a debt service component. Upon the last payment the vehicle is resold back to the finance company that wrote the lease. Damage or excess miles are billed to the leasee. Often the leasor will incentivise the leasee to turn the vehicle in early with a free one or two free months on the next vehicle. An early terminated lease has a very expensive and high residual (the mount owed the leasor) Leasors are literally knocking a home run in this used market. I suspect it will continue into 2023. In recent years OEMS have restricted rental depreciation programs to less than 5 % of the total model build - to prevent flooding of the market with like new used vehicles, as it hurts their residuals upon termination. A hard lesson learned in the 2008 credit crisis. Some banks love leases, US Bank for one. Others don't like guaranteeing a used vehicle residual and won't touch them with a ten foot pole. With the potential of $4.00 to $5.00 a gallon gas, the residual on a big gas guzzling 4x4 Suburban may just be colder than your mother-in-laws heart when it terminates its lease in 2025. There are huge risks on big money bets. Many a bank has had huge losses from market shifts in affordability of ownership. Hope that helps in understanding leasing. California and the east coast states do a lot of leasing. The deductibility of the lease expense makes a big difference. Bob