Automotive News Canada - July 2023 - 10

10
07.23
OPINION
Leasing's lost lustre:
Will it really rebound?
THE ALLURE OF LEASING OVER
traditional financing has historically
been that a customer can drive a more
expensive car for a lower payment.
That's because, for leasing, the
amount being financed is not the total
price of the vehicle,
but the difference
between the price
and the value at
the end of the
lease. Let's say a
$50,000 vehicle is
worth 40 per cent
EDITOR-IN-CHIEF
JEFF
MELNYCHUK
of the original price after four years. The
customer is financing the difference -
60 per cent - over the four-year lease
period. Perhaps more significantly, sales
tax is paid only on that 60 per cent,
added to each lease payment instead
of due all at once, upfront, which can
really sting.
Predicting
residual values is
risky, and buyers
seem content with
longer and longer
finance terms to
keep payments in
check. That said,
falling leasing
penetration
matters.
Whether leasing is the right choice
requires weighing a number of other
factors, from the interest rate to the
number of kilometres driven. For example,
if a customer is paying for 80,000
kilometres of
use over four
years but drives
only 30,000
because they
now work from
home, did they
waste money?
And if they go
over 80,000,
they pay. There's
of lot of fine
print in a lease,
and for this
game, the
house always
wins.
I could spend
a whole column getting into the weeds
on leasing vs. financing, but the point is
to provide a bit of background for this
next bit: Leasing is losing its lustre.
According to a Page 3 story, leasing
penetration slid to 20 per cent in the
second quarter of 2023, from 30 per
cent in the fourth quarter of 2020. The
reasons vary from higher interest rates
to increased home values, which
increases the amount available in home
equity credit lines, enabling more cash
purchases of vehicles.
That leaves dealers with a problem.
One of the reasons they like leasing is
that customers have to return to the
store at the end of the lease period,
providing the golden opportunity to get
them into another vehicle.
That is unless customers choose to
buy out their leases because the residual
values are a lot lower than the market
value, which is
what's happening
now. And those
leases are being
bought out with
that newfound
headroom in home
equity credit lines.
While this constitutes a sale, the
customer has less reason to return to
the store. The purchase cycle is broken.
And that? That's a problem.
Lease payments can still be reasonably
attractive if they're balanced by
higher residual values (tied to higher
values currently placed on used vehicles),
but as loan terms continue to
stretch - 84 months and beyond -
leasing loses its payment advantage.
And even on an 84-month financing
deal, customers are likely to seek a new
vehicle before the end of the term, perhaps
as early as 36 to 48 months. That
means finance customers are perhaps
just as likely as lease customers to
return to their dealerships for their next
vehicle, although not on any kind of
schedule.
I'm also pretty sure that given the
current climate of used-vehicle pricing
volatility, automakers and their captive
finance companies would rather not
have to predict residual values three or
four years down the road. That burden
is offloaded to customers when they get
a purchase loan. They assume the risk
of value at the time they return to the
dealership to trade.
Then why not push all buyers toward
financing? With 84-month terms
already in place to keep the payments
affordable, I think they're already there.
We all know that most buyers are payment
focused.
Most sources in the Page 3 story
expect leasing to bounce back, but
without the allure of driving a more
expensive car for a lower payment, will
it? Not likely unless the captives make
leasing a priority. I'm not so sure they
have a reason to, other than to get a
strong stream of lease returns to bolster
increasingly important used inventories.
Then again, maybe that's a good reason
to. - ANC
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Industry execs to Ottawa on EVs:
Where's infrastructure plan?
THEY'RE STARTING TO SOUND LIKE A BROKEN
record, but auto executives aren't letting up on
government to accelerate the installation of electric-vehicle
infrastructure across the country.
Indeed, their pleas have grown more urgent.
" The targets the government is
setting in terms of EV sales just
aren't realistic at the current pace
of actual EV purchases and public
acceptance, let alone the woeful
lack of a public infrastructure to
charge these vehicles, " Huw
Williams, director of public affairs
at the Canadian Automobile
EV adoption is
growing, but a
lack of chargers
could threaten
momentum.
Dealers Association (CADA), said at a press conference
June 26.
Williams was flanked by Brian Kingston, president
of the Canadian Vehicle
Manufacturers Association
(CVMA), which lobbies on
behalf of the Detroit Three in
Canada, and David Adams,
president of the Global
Automakers of Canada, which
represents the import brands.
The three joined forces in
another attempt to press
Ottawa for decisive leadership. Instead of simply
issuing pleas, the trio unveiled a ZEV timeline, part
of a public awareness campaign, showing that
Canada will need 442,000 public chargers to meet
Ottawa's target of 100 per cent sales of zero-emission
vehicles by 2035.
With an estimated 12.4 million EVs on Canadian
roads by then, the required number of chargers is
not achievable at the current rate of building new
charging infrastructure, they said. Their campaign
MACALUSO
MANAGING EDITOR
GRACE
coincides with a J.D. Power survey that shows waning
consumer interest in electric vehicles (story on
Page 34). The study indicates that overall EV consideration
in Canada had declined 13 percentage
points to 34 per cent from 47 per cent in 2022.
" Despite current legislation that
is pushing hard for EV adoption,
consumers in Canada are still not
sold on the idea of automotive
electrification, " said J.D. Ney, J.D.
Power Canada
director of automotive
practice.
" Growing concerns
about affordability and infrastructure
have caused a significant decline in
the number of consumers who see
themselves in the market for an EV
anytime soon. "
Ottawa, said Kingston, needs a
comprehensive, long-term plan.
Without a concerted effort to
address the shortcomings in infrastructure,
" electrified mobility can't
be achieved, " said CADA's Williams.
ZEV adoption grew to 8.2 per
cent of all new-vehicle registrations
in 2022 from 0.3 per cent in
Williams:
Government
" can't just
wave a magic
wand and all
of a sudden
EVs appear
everywhere. "
FILE PHOTO
2011, according to federal statistics. But persistent
worries about where to recharge could stall any
momentum.
" The government can set their timelines, but
then they have to show leadership to make sure all
the elements needed to make these sales increases
actually happen, " said Williams. " They can't just
wave a magic wand and all of a sudden EVs appear
everywhere. " - ANC
Tesla rewrites the rules of the
EV game with new charger deals
FULL DISCLOSURE: I SPENT
the majority of the last two years
claiming - my words - that
" Ford would one day eat Tesla's
lunch. "
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With a few
strokes of
the pen and
some shrewd
negotiating,
the number of
available fast
chargers grew
exponentially.
This was when the legacy
automaker was busy unveiling
the Ford F-150 Lightning electric
pickup, hot off the heels of the
Mustang
Mach-E.
Today, I'm
prepared to eat
crow, as the
saying goes.
Tesla might
not make all
the vehicles
people want -
that is to say,
pickups and
SUVs - but
they still do
make vehicles
a lot of people
want, as evidenced by 1.31 million
vehicles sold worldwide last
year. My view of Tesla's popularity
- which I sometimes liken to a
cult - was, admittedly, myopic,
based largely on public reluctance
to plug into battery-electric
vehicles.
But what has me more certain
that Tesla will be here for a very
long time - selling the cars people
want or not - is its ability to
change the electric-vehicle
charging infrastructure on a dime.
DIGITAL AND
MOBILE EDITOR
GREG
LAYSON
The disruptor spent most of
June and early July completely
reshaping the industry. Elon
Musk and Co. convinced General
Motors, Ford, Hyundai,
Mercedes-Benz, Volvo and Rivian
to start using its North American
Charging Standard (NACS) plug.
Stellantis and Volkswagen are
also considering the same move.
It was like watching dominoes
fall on a daily basis as I sat at my
desk editing and posting stories
about deal after deal.
And, at the same time, companies
that manufacture chargers
are also falling in line.
Electrify America will add Tesla
chargers to its vast network. And
Canadian EV charger maker Flo
will incorporate the NACS plug
into its next generation of chargers.
This
is all very big news
because Tesla operates about
17,000 charging connectors in
North America. And, according to
a recent J.D. Power study, its
fast-charging network is considered
one of the most dependable.
That's important because
This is a Mercedes-Benz EV at
a Tesla charging station.
It seems Tesla will be around
for a very long time.
PHOTO: MERCEDES-BENZ
as we've been hearing for years,
range anxiety and infrastructure
- or lack thereof - are real
deterrents to EV sales in Canada.
But, Tesla owners generally
don't have those worries because
the network is so big and so reliable.
So,
now imagine every charger
- and EV - in North
America is suddenly and essentially
a Tesla. That's a game
changer, for the automaker and
the industry.
With a few strokes of the pen
and some shrewd negotiating,
I'm sure - details of these
agreements were not disclosed
- the number of fast chargers
available to Canadians grew
exponentially. It's almost as if
we'll have a charger on every
corner, much the way we see gas
stations today.
This might very well go down
as Musk's and Tesla's greatest
accomplishment. - ANC
Automotive News Canada - July 2023

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