Like many lenders, BMW Financial Services is feeling the pullback in leasing.
The company originated about 143,000 finance contracts in 2000, up 6.3 percent from 1999. It was the first time since 1993 that BMW Financial Services failed to post double-digit growth.
Most of the slowdown reflected lower leasing volume.
'There is an increased migration to financing and to cash purchases from leasing,' said Bob Devine, managing director.
Since late 2000, leasing as a share of total business has fallen to between 35 percent and 39 percent, from a more typical 45 percent, he said. Cash buyers - including buyers who may have taken out a loan somewhere else, such as a credit union - have risen to 40 percent to 45 percent of the total, from 30 percent.
About 20 percent are taking conventional loans, up from 10 percent, Devine said.
Residual values for almost the whole industry have tumbled this year, which makes leasing less attractive to customers. In leasing, the customer in effect is borrowing the difference between the transaction price and the vehicle's predicted residual value. The lower the residual, therefore, the more the customer has to borrow and the higher the monthly payment.
Following the market
'We have adjusted our residuals to reflect the market,' Devine said in a Feb. 20 interview at BMW of North America Inc. headquarters in Woodcliff Lake, N.J. BMW Financial Services is based in Dublin, Ohio, a suburb of Columbus.
BMW residuals are off sharply in the benchmark Automotive Lease Guide, which BMW Financial Services consults in setting its residuals.
In the latest guide for March/April, the predicted residual on a typically equipped 3-series sedan is 6 percentage points lower than a year ago on a three-year lease.
That is, the residual value has fallen from 57 percent of sticker price a year ago to 51 percent today, a drop of about $1,800. A typically equipped 740iL has fallen 4 points, from 50 percent of sticker price to 46 percent. That represents a drop of about $2,700.
Because lower residuals force lease customers to pay higher monthly payments, or pay a higher down payment, leases lose a competitive edge. For BMW Financial Services, that means fewer leases and more loans or cash buyers.
In the long run, the captive expects to grow substantially as U.S. sales grow. Later this decade, BMW expects U.S. sales of more than 300,000 new cars and light trucks annually, compared with a record 189,423 in 2000.
In addition, BMW dealers sold a record 44,687 certified used cars in 2000, 58.1 percent ahead of 1999.
Adding Mini, Rolls
BMW Financial Services also is getting ready to add financing for the Mini brand early in 2002, and the Rolls-Royce brand in January 2003. The BMW brand also adds an entry-level car in 2004, the 1 series, which should add financing volume.
The finance company is adding 100 positions to its customer service center in Ohio by the end of 2002, bringing the total positions to about 500, and nearly doubling the size of the building. About 1 million calls a year pass through the center, Devine said.
'Doubling the floor space does not mean we're doubling the (employee) numbers,' he said. 'There are efficiencies to be had, but we also are creating a better work environment.'
Jim Henry is an Automotive News staff reporter in New York