Tag Archive | "BMW"

Leases Entice Drivers to Upgrade Cars as Often as IPhones


When Adam Gilgis leased a Volkswagen GTI this month, he had one goal: a low monthly payment, reported Bloomberg.

“We pay $320, which is perfect,” said the 35-year-old Chicago attorney. “If we finance the car, we’re paying thousands of dollars more over the course of several years.”

Auto leasing is back in a big way as automakers including Volkswagen AG and General Motors Co. pull back on discounts and rebates and entice Americans with ads promising cheap leases instead. So far this year, leases have accounted for about 27.7 percent of new-auto sales, according to Edmunds.com, the highest rate in years. Buyers like Gilgis shun long-term loans associated with outright purchases because increasingly they see cars as smartphone-like gadgets to be upgraded every few years.

“Like an iPhone, one can get a new vehicle with all the new technology and have a similar payment as before,” said Jessica Caldwell, an analyst for auto researcher Edmunds.com.

The recent surge in leasing is helping power U.S. auto sales, which are headed for the biggest year since 2007, when 16.15 million vehicles were sold. In June, five of the top six automakers beat analysts’ sales estimates. Lenders’ willingness to offer loans that stretch as long as eight years also is boosting sales. Terms of 73 to 84 months accounted for 24.9 percent of all sales in the first quarter, according to data from data services group Experian Automotive.

Once Tacky

Leasing was once considered tacky and financially frivolous, letting posers drive cars they could ill afford.

“Thirty years ago, if you rolled up next to someone riding in a BMW or a Porsche and you said ‘that car is leased,’ it was one of the biggest insults you could throw at someone,” said Mark Wakefield, a managing director at AlixPartners LLP. “Now, you’d say, ‘Yeah? So, what?’”

Attitudes began changing in the late-1990s, when mainstream buyers began leasing family sedans from Honda Motor Co. and Toyota Motor Corp. Now, with the economy improving and the financial crisis receding in the rear-view mirror, leasing is gaining traction once again. Automakers and banks are piling in because they’re betting that a robust used-car market means leased vehicles will hold their value after they’re returned. The higher the “residual value,” the less the car depreciates during the lease and the less consumers pay per month.

Drivers often weigh the cost of leasing versus taking out a loan and buying a car. With a 20-percent down payment on a Toyota Camry SE priced at $23,740, a 60-month loan costs an average of $341 per month compared with $207 for a 36-month lease, according to a TrueCar analysis.

Kia Sorento

Non-luxury buyers are leasing at a pace not seen since the late 1990s. Advertising consultant Drew Ament and his wife leased a Kia Sorento for $450 a month for 36 months in February.

“It’s good for me knowing that the lease gives her peace of mind,” said Ament, who lives in Phoenix. “I’m a guy who will get a car and then drive it until it’s dead. I have a Chevy Silverado right now that I’ll probably have until it’s done. My wife can’t do that. So, I pretty much give her a budget each month, and if it’s under that budget, then go for it. And she gets the most for her money.”

He’d rather not have a monthly payment, but considers it worthwhile to ensure his wife and children have a new vehicle that’s safe to drive.

“It’ll be nice maybe a couple leases from now to not have to lease a three-row SUV once the kids move out,” Ament said.

Auto leasing is a hotly debated topic. Consumer Reports has long said buyers are better off paying cash for a new car or taking out a short-term loan.

Hidden Fees

While leasing offers lower monthly payments and repair costs than buying new or used, Edmunds warns on its website that leasing vehicles is more expensive over the long run than buying a car and keeping it. The research firm also says lease contracts can be hard to understand and include hidden fees, including maintenance and damage charges. Simply exceeding the lease’s mileage limits, typically 12,000 miles per year, can cost a driver thousands of dollars.

Leasing also “puts you on a treadmill to buy a new car over and over every few years with no end in sight,” said Anthony Giorgianni, an associate editor at Consumer Reports. “Leasing is just a bad way to purchase a new car unless you’re a really wealthy individual and you just don’t care about costs. Otherwise, it’s smoke and mirrors.”

Jessica Caswell, communications manager at VSP Vision Care in Sacramento, California, said that when she leased a new Honda Civic she didn’t realize insurers often charge higher premiums and fees for leased vehicles.

Significant Sum

“It’s a significant amount of money, and you don’t really know about it when you sign the lease,” Caswell said.

She said she may buy the car once the lease is up.

Kevin Tynan, a Bloomberg Industries auto analyst, calls leases “the new incentive.” The question, he said, is how long can U.S. automakers rely on them to fuel sales.

Tynan said that when millions of previously leased vehicles end up on used car lots at cheap prices, it might make less sense for consumers to buy or lease a new vehicle.

“I think we’re about 36 months out from a period where pre-owned makes more economic sense for the average buyer,” he said. “New vehicle demand could flatten for a period beginning in 2017-18 as we work through all these off-lease autos.”

Long-term loans also could crimp sales because people don’t buy new cars when they are paying off the one they own. To ensure that doesn’t happen, dealers will have to get creative with their come-ons, said Larry Dominique, the president of TrueCar Inc., an online auto-buying service.

“It’s a bit easier with lessees since they tend to be customers who like new cars every couple of years, so you’d hope they’d be back,” he said. “But how can you build loyalty with those who buy their cars so that they’ll come back seven, eight years later? It’s challenging.”

One way to build loyalty is through giveaways and promotions, including free car washes, Dominique said.

“I’ve even gotten an offer to attend a free wine and hors d’oeuvres tasting at a dealership,” he said. “It’s coming up with things like that to engage customers that’s important.”

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Dealership Buy/Sell Activity Jumps 60% in Q1


Irvine, CA — Kerrigan Advisors, a firm specializing in serving dealership sellers, released its quarterly report on dealership buy/sell activity in the U.S. Market. It found that such activity increased dramatically in the first quarter.

Laying out the high, average and low multiples for each franchise in the luxury and non-luxury segments for the quarter, the Kerrigan Quarterly Blue Sky Report offers a detailed view of public and private company dealership acquisition activity. In addition to the sharp spike in selling, the report found that that blue sky pricing remains high for most franchises and that the market has established a pricing floor.

“As anticipated, an increase in the number of sellers coming to market has led to a major uptick in buy/sell activity,” said Erin Kerrigan, founder and managing director of Kerrigan Advisors. “We attribute this to high blue sky prices, buyer demand for dealerships and a slowdown in dealership profit growth, meaning sellers are concerned about missing the market and want to ensure they exit on top.

“Private companies continued to dominate the market in quarter one, although public company activity rose slightly during the quarter and will likely continue to pick up after the announcement of Lithia’s acquisition of DCH,” she added. “The publics, however, are being very disciplined with their capital allocation. If they believe the better investment is their own stock, they are choosing a stock buyback over an acquisition. In the first quarter, collectively, they chose to spend 70% more on their own stock than on U.S. acquisitions.”

The firm found that buy/sell activity increased 60% in the first quarter and that more sellers are coming to market to capitalize on high blue sky values that may fade as earning growth slows. Blue sky values remain at elevated levels as dealership earnings continue to grow, albeit more slowly; and multiples remain high or reach higher levels.

The multiples for Honda, Toyota, BMW, Mercedes, Lexus and Porsche have increased since 2013, the report noted. As competition for auto retail market share heats up, buyers are placing an even higher premium on these franchises. And with the average dealership earning an annual 28% return on equity, few dealers are willing to sell their franchises for less than a 3x blue sky multiple in today’s market.

“While the future continues to look rosy for dealership acquisitions, we will likely start to see some negative shifts as increasing competition for car sales brings blue sky winners and losers,” Kerrigan concluded.

To read the full report, click here.

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BMW and Tesla Executives Meet to Discuss Electric Cars


Executives from German carmaker BMW and U.S.-based Tesla Motors Inc met this week in a move which could lead to the creation of charging stations usable for different types of electric cars, reported Reuters.

BMW and electric carmaker Tesla are seeking ways to raise the popularity of battery-powered vehicles, which consumers have shunned due to their limited operating range, the scarcity of charging stations and the time it takes to recharge them.

“Both companies are strongly committed to the success of electro-mobility and discussed how to further strengthen the development of electro-mobility on an international level,” a BMW spokesman said in a statement on Friday.

BMW said the meeting had taken place on Wednesday but declined to comment in detail about the nature of the talks, or about which BMW executives had met with Tesla.

In a conference call on Thursday, Tesla Chief Executive Elon Musk said there had been talks with BMW about how to promote the use of electric vehicles and how to make better use of Tesla’s network of charging stations.

Carmakers including General Motors, Ford, Chrysler, BMW, Daimler, Volkswagen, Audi and Porsche have committed to adopting a common SAE combo standard for fast-charging connectors.

Fast-charging stations allow electric vehicle owners to recharge batteries up to 80 percent in less than 20 minutes.

Today, the Chevrolet Spark and the BMW i3 for example can use the same battery recharging stations.

Tesla has, however, developed its own network of high-speed charging stations including along key autobahn routes in Germany in an effort to make electric cars viable for long-distance commuting.

Tesla’s charger system can be fitted with an adapter that allows its cars, including the Tesla Model S, to be recharged on both the SAE chargers and its own system.

Sharing Patents

Tesla also said on Thursday that it would allow others to make use of its intellectual property in the hope of speeding up development of electric cars by all manufacturers.

Musk said this included all of Tesla’s patents, including several hundred current ones and several thousand in the future.

German premium auto makers have been keen to collaborate with Tesla.

In January, Daimler Chief Executive Dieter Zetsche said the German maker of Mercedes-Benz cars was open to deepening its partnership with the U.S. firm.

Daimler holds a 4.3 percent stake in Tesla, which is already supplying it with electric motors and batteries for its Smart Fortwo electric vehicle (EV) and the new Mercedes-Benz B-Class EV.

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Tesla Motors Offers Open Licenses to Its Patents


Tesla Motors Inc. is offering the proprietary technology at the heart of its Model S electric car to any company that wants to build vehicles, and its chief suggested BMW AG already is interested in sharing certain patents, reported The Wall Street Journal.

Chief Executive Elon Musk said during a conference call on Thursday the offer is intended to help spur wider development of electric vehicles. Mr. Musk said one topic discussed with BMW executives was sharing Tesla’s technology for rapidly recharging batteries, part of the company’s “supercharger” stations.

The Palo Alto, Calif., maker of $71,000 and up luxury electric cars decided to offer open access to Tesla patents out of frustration that electric vehicles remain less than 1% of new cars and light trucks sold each year.

BMW couldn’t be reached for immediate comment.

Mr. Musk also hinted at another reason for the offer: achieving greater economies of scale. For example, Tesla’s patents for its vehicle Supercharging stations could be shared with other auto makers, which could help Tesla spread costs and more quickly make more stations available.

More manufacturers should use small battery cells, as Tesla does, Mr. Musk said. “That would be one thing I would recommend.” He has outlined plans to build a large battery factory, which he calls the gigafactory, to produce more battery packs in the U.S.

Tesla has “several hundred” patents related to all areas of its electric vehicles, Mr. Musk said, including batteries and electric control systems. Tesla isn’t worried a competitor could use its patents to undercut the company, he said.

“We wouldn’t someone to mimic our car to…trick people into thinking it’s our car when it’s not,” Mr. Musk said. The company expects to continue to file patent applications, but won’t enforcing its patents.

“If a company is truly relying on patents it means they aren’t innovating, or not innovating fast enough,” he said. “But this can be of some modest help to others.”

Mr. Musk said he initially received some “wide-eyed looks” from members of his board of directors and other managers. He said open sourcing its technology can help attract top engineering talent who want to see their inventions spread and not just be bottled up into one company.

“This is actually good for Tesla and the electric vehicle industry. I really do believe that,” he said.

Mr. Musk teased Thursday’s announcement as a controversial move. But after promoting his decision, he described it on Thursday as “a modest thing.” Patents, he said, shouldn’t be so important. “You want to be innovating so fast [that] you invalidate your prior patents.”

The auto industry has had its share of epic intellectual property fights, including a battle in the industry’s earliest years over who held patent rights to the idea of the automobile. During the 1970s, General Motors Co. shared its breakthrough in developing the catalytic converter, which scrubs smog-forming pollutants out of exhaust.

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Strong Mercedes Sales Have Yet to Move it Past Audi


Mercedes-Benz keeps delivering double-digit sales growth, but its overhauled line-up of luxury cars has yet to move it past German rival Audi, reported Reuters.

Deliveries of Daimler’s flagship passenger-car brand rose 10.4 percent in May to a record 134,031 vehicles, helped by 30 percent growth in China, the company said on Friday.

That compared with 152,000 deliveries, or 10.8 percent growth, at Volkswagen’s Audi which has outsold Mercedes every month this year.

Having eclipsed Mercedes in 2011 as the world’s No. 2 luxury carmaker behind BMW, Audi sold 72,516 more cars than its Stuttgart-based rival in the first five months. Last year, the gap was 114,000.

But launches in March of Mercedes’s new C-Class saloon and the GLA offroader may pave the way for a second-half turnaround, analysts say. Other recent overhauls include the top-of-the-line S-Class and the E-Class, both launched about a year ago.

“Mercedes will surpass Audi after the summer, that’s when their refreshed lineup will take off,” said Hanover-based NordLB analyst Frank Schwope.

The world’s No. 3 premium automaker has a goal of pushing sales above 1.5 million this year, after 1.46 million in 2013.

By comparison, Audi is aiming to “clearly” exceed last year’s record 1.58 million sales, while BMW is planning for deliveries of 2 million or more, after selling a record 1.96 million in 2013.

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Autobrake Ratings Show Improvement


Via The Detroit News:

Washington —The auto industry is moving quickly to adopt advanced technologies to help drivers avoid front-end crashes by adding systems that automatically brake the vehicles. Automakers are being prompted in part by the Insurance Institute for Highway Safety, which last year unveiled a new rating system for front-crash prevention.

In its latest testing of 24 cars and SUVs released today, IIHS said 21 earned advanced or higher ratings.

Four of those vehicles with advanced options earned perfect scores: the 2014 BMW 5 Series and X5, 2014 Mercedes-Benz E-Class and 2015 Hyundai Genesis.

Four U.S. cars rounded out the eight models getting the highest rating of superior: General Motors Co.’s 2014 Buick Regal, Cadillac CTS, Cadillac XTS and Chevrolet Impala earned the top rating when equipped with the automaker’s forward-collision warning and auto braking system. The 2014 Buick LaCrosse earns the next-highest rating — advanced — when it has the same system. All of these cars also are available with a warning system only, which earns a basic rating.

GM previously got superior ratings for the Cadillac ATS and SRX, which were included in the first round of testing in 2013.

The only other U.S. vehicle to get rated in this round of testing was Chrysler Group’s Dodge Durango, which won an advanced rating.

Besides the eight models earning superiors, 13 were deemed advanced and three got basic ratings. IIHS rates vehicles as superior, advanced or basic for front-crash prevention depending on whether they offer auto braking and, if so, how effective it is in tests at 12 and 25 mph. Some systems merely alert drivers of a possible crash, rather than apply the brakes in an emergency situation.

The insurance industry-funded group said more than 20 percent of 2014 models offer a front-crash prevention system with automatic braking, twice as many as in 2012. Forward-collision warning systems are offered as an option on nearly 40 percent of 2014 models.

Many automakers have improved the systems to meet new tests set by IIHS, because many consumers consult the ratings before buying a new car.

“We are already seeing improvements from automakers since the initial launch of our ratings last September,” said David Zuby, IIHS executive vice president and chief research officer. “BMW and Lexus, for example, have added more braking capability to their systems, which has paid off in higher ratings.”

BMW’s improved system did well in testing. By contrast, its 2013 3 series was rated basic. The earlier model’s system braked for a stopped car ahead only if sensors first detected the car moving before it stopped.

Toyota’s Lexus luxury unit improved its radar-based systems to provide more braking capability, garnering an advanced rating for the GS large car and IS midsize car.

The systems show great promise to save hundreds — if not thousands — of lives by warning inattentive drivers before they hit a car ahead, or alerting them they are about to go off the road — or intervening to prevent crashes. Those types of wrecks account for 60 percent of fatal highway accidents, and the new technology could substantially reduce them.

“We know that this technology is helping drivers avoid crashes,” Zuby said. “The advantage of autobrake is that even in cases where a crash can’t be avoided entirely, the system will reduce speed. Reducing the speed reduces the amount of damage that occurs to both the striking and struck cars, and reduces injuries to people in those cars.”

The National Highway Traffic Safety Administration missed a self-imposed Dec. 31 deadline to decide whether to advance regulations to require the systems in future vehicles. Nearly five months later, the auto safety agency has offered no timetable for making a decision. NHTSA could simply opt to note whether vehicles have systems on window stickers as part of its New Car Assessment Program.

The Alliance of Automobile Manufacturers has praised the technologies, but opposes making them mandatory. It notes that the electronic systems can add $1,000 to $3,500 per vehicle, though costs will decline since most are software-based.

It takes a long time for advanced safety features, which typically debut on luxury cars, to reach all cars on the road. IIHS estimates it takes at least 30 years for a safety feature to spread to 95 percent of vehicles on the road.

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