The New F150 Has Been Announced, Lines Are Forming!

Exciting isn’t it? What if a new vehicle was announced and Iphone like lines started to form outside of car dealerships? Well, this may not be reality today, but it sure seems that some startups are convinced it could be the future!

In a recent article published by Auto Finance News that covered a Fireside Chat in Las Vegas, Founder and Chief Executive Nathan Hecht expressed his beliefs that leasing (Not Owning) are how Americans will increasingly choose to obtain vehicles in the future. He was quoted as saying, “I think the evolution of cars is in leasing. For [millennials] private ownership is gone. You buy an iPhone for two years, and I look at a car the same way.”

Listen, I get it: Society is moving on from ownership and this sentiment is increasing but, we can’t lose sight of why this happens with particular products or else we could get carried away with what should be a simple premise. Yes, a large part of choosing not to own something today is associated with mobility and flexibility but, like anything else, the math (Price) is what has to work first. With vehicles there is far more here to consider than what the next generation of drivers may or may not prefer, in this instance that means that we can’t go around assuming that because millennials (Which I am) are not devoted to ownership that we will take any less than a great deal to remain “flexible”. For example, were you aware that millennials spend more time shopping for a car than any other generation? More time shopping for something we don’t want to be tied down to? Yes, because it’s not about the freedom, it’s the other F-word (No not that one): Finances. I wrote another article about this previously here on Medium.

That being said, there may still be an overriding factor outside of what any consumer may ever want or prefer when it comes to ownership vs leasing, and that’s the business interest of the car dealers.

Although many startups and those “In the know” think future drivers will prefer sharing, leasing, or user agreements similar to cell phones over ownership, large dealer groups, like Autonation, have invested heavily in expanding their Used Cars “Sales” divisions, opening numerous stores and hiring thousands of new employees. I’ll state the obvious here: They don’t do that without the data that backs up the move. Cars are simply not cell phones or streaming movies and dealerships and dealer groups like Autonation understand that. A phone that’s 3 years old is considered by many as nearly obsolete whereas a car in that timeframe could be classified as certified then sold for a premium.

Speaking of data, although certain companies may tout record leases over the past few years, are you also aware that 2016 saw a record number of used vehicle SALES? As a matter of fact, when I think about all of the studies done as to why a record number of Americans were leasing, I never recall hearing that the largest reasons had anything to do with a lack of desire for ownership. If I remember correctly, the improving economy, credit scores, and higher vehicle prices were the main reasons for the increase in leasing. But, younger Americans (Millennials) are leasing more right? Sure, but senior citizens over 75 are leasing more as well, are we to assume they value ownership like your average millennial?

What I would pay attention to and what I truly feel is the most important factor in vehicle sales vs leases going forward is how dealers think of leasing amidst record lease “Returns”.

MATH WARNING!!

There are about 4 million leases each year, 17m new car purchases, and 40m used car purchases. Record leases mean record lease returns which drive up inventory and drive down used car prices. Used car prices going down means that the bets placed on what a leased vehicle could be sold for upon return were wrong when the dealership wrote the lease = Money lost. More Supply than demand is a strong buyer's market which again for the dealers = Money lost. Lower prices of “used” cars means that incentives have to be juiced up on newer cars to keep people buying new or the factories close and the unions get upset= Money Lost.

Dealers, or even Car Makers for that matter, will simply never allow for the interruption or better yet, disruption, of 57m vehicles sold each year!

Think about it this way: You are promising to dramatically increase the inventory of car dealerships with vehicles that you are predicting won’t be in demand…….

Autohitch
The car searching, shopping & buying experience is about to change. Autohitch brings compatible matchmaking to the auto…www.autohitch.com

Honcker - Car Leasing App
Honcker - Car Leasing Appwww.honcker.com

Used vehicle sales set to hit all-time high in 2016
Used cars and trucks are getting new love as 2016 is on track for a record number of preowned vehicle sales. For the…www.cnbc.com