The New York Times has a story that’s fascinating in its own right: the number of people leasing a car on leasetrader.com without first test-driving the car has doubled since 2007.  Troubling stuff for most auto enthusiasts among us, but probably not much of a surprise to readers on the retail side of the business. One auto broker explains the most common reasons for taking this leap of faith:

Generally these are people who know what they want, whether it’s because they’re very brand-loyal or they’ve fallen in love with the styling of a particular model. Same goes for buyers who are strictly interested in getting the best deal, and those with limited choices like a big family that needs a nine-passenger vehicle with 4-wheel drive.

But, as one “enthusiast” explains, some consumers are just so well informed, they don’t need to drive their car before they buy it. That’s what they subscribe to magazines for!

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Polk’s Tom Libby takes a penetrating look into the obvious and reveals that American luxury car buyers rarely actually buy their cars, reporting:

Industry-wide, leases comprise about a fifth of all new vehicle registrations, but within the luxury market, lease penetration is more than twice as high at 45%. Three premium makes: BMW, Infiniti and Mercedes-Benz, actually have national lease rates at or above 50%…

These extraordinarily high lease results lead to several conclusions. First, the price of the vehicle is not the be-all and end-all. Rather, the monthly lease payment is a crucial factor. The monthly payment is not completely linked to the price, as the OEM and dealer have several tools by which to manipulate the monthly payment; these include, among other things, artificially raising the forecasted residual amount and increasing/decreasing the up-front lease payment. Second, if your premium make is not in the leasing business, you need to get there right away. Lastly, your lease rates, residuals and drive-away costs need to be competitive.

While there’s a lesson about America’s ceaseless desire to live beyond its means in there somewhere, the real lesson here is this: with sales coming out tomorrow, be sure to remember that not all of them are actual sales. Also, this is the reason you never see those “Don’t Laugh, It’s Paid Off” stickers anymore…

Think BMW sells a lot of cars in the US? The German automaker may have registered nearly 20,000 “sales” in the US last month, but according to the analysts at Polk, over 50 percent of its “sales” in 2010 were actually leases. No wonder BMW’s best-seller, the Dreier (3 Series), occupies a nearly unique position on the price-volume frontier. And apparently BMW will continue to look to non-sales for future sales growth, as Automotive News [sub] reports the firm has launched a new car-sharing joint venture in Europe aimed at bringing in a million new customers by 2020. The pitch: sleek new Bavarian metal, as well as the ability to pick up and drop off vehicles anywhere, thanks to smartphone vehicle tracking. But the biggest pitch, say BMW sources, is to people who would never buy a new BMW… or even lease one. And they’re not just talking about poor folks either…

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Remember the phrase “jobless recovery”? Well, the auto industry is having something of a “price dropping recovery.” The headline for February auto sales may have been “the buyers are back,” but beneath the big volume boosts there’s trouble a-brewing. According to TrueCar’s transaction price forecast (above), Hyundai CEO John Krafcik was right to warn of an industry price war, as the industry has lost .3% of its average transaction price during the last year of recovery. Over the last year, Honda, Kia, Toyota and GM have all seen declines in average transaction prices, led by GM’s staggering two percent drop. And falling transaction prices are just the beginning: as we explore after the jump, incentives are also remaining high, and yet another volume-boosting technique is enjoying a boom as the industry once again starts to redline its sales.

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After one year of ownership we would expect EV residual values to be above the segment average expressed in terms of pound values. But, if the battery is owned rather than leased, and lacks the appropriate extended warranty, the value of the typical EV will then fall dramatically until the vehicle is five years old, at which point the car will have a trade value little more than 10 per cent of the list price

So says Andy Carroll, managing director of the British car-buying bible, Glass’s Guide. He tells BusinessCar that Nissan and other firms launching EVs in Britain should take out the battery cost and lease it to customers with minimum monthly performance clauses. This, he says, would dispel concerns, drive sales, and transform the resale picture. It’s also what Project Better Place is doing, albeit in a complete regional package with battery-swap stations and charging infrastructure.

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Once again Detroit finds itself atop Edmunds’ True Cost of Incentive ranking of the top seven automakers [via earthtimes], as the domestic OEMs spent about $1.7b (or, about 60 percent) of the $2.8b paid out by the entire industry on incentives last month. Trucks were the most heavily discounted segment, with average incentives running around $4,650, or nearly 13 percent of the average segment sticker price. Saab spent the most by brand, slapping an average of $6,813 on its vehicles, with Lincoln coming in second at $4,987 per vehicle sold. Saab’s incentives equaled 17.1 percent of its average vehicle price, while Chrysler gave away about 12.2 percent of its average vehicle price last month.

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“We need young, college-educated people like you,” the man said, “because the old way of selling cars is dead and gone. That’s why I was hired — to bring the dealership into the present day.” And with those thoroughly self-deceived words, the new sales manager at “Infiniti Of Columbus” welcomed to me to the team in March of 1994. It was the end of winter in Ohio, but it was just the middle of Infiniti’s long winter of discontent. We had three products. There was a facelifted Q45 which precisely nobody wanted. There was a facelifted G20 which cost nearly as much as a Lexus ES300 while closely resembling a Nissan Sentra inside and out. Note, however, that the G20 shared nothing but the engine with the aforementioned Sentra. On any given month, we would sell two G20s and no Q45s. In fact, during my entire six months’ tenure at the store, we only sold two Q45s, one of them to a salesman who was quitting to go work for Merrill Lynch.

It was the new-for-1993 J30 that kept the lights on and paid our meager draws against commission. The jellybean-shaped, rear-wheel-drive sedan was available as a J30 or J30t. Neither car had any options available: in an amazing reductio ad absurdum of the Japanese export philosophy, the equipment list was the same for every single car that came off the boat. The “t” model added HICAS four-wheel-steering, a rear spoiler that truly spoiled the otherwise interesting design, and some cross-spoke wheels. They were hideously expensive — $37,995 and up in an era where an LS400 could be had for fifty grand or less — and they were both controversial-looking and suspiciously similar to a Nissan Altima at a distance. (Jerry Hirschberg designed ‘em both.)

It didn’t matter. We rarely sold any outright, but more than 20 would leave the lot every month thanks to the Magic Lease.
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Anthony writes:

I currently own a 2006 Acura TSX, 6-speed manual, with 32,000 miles. I’m also leasing a 2008 Mazda Miata for 2-years. I’m giving the Miata back in September of this year and it’s way under milage. I have two questions about my TSX:

1) Because of the mileage, I want to drive the leased Miata as much as possible. How little can I drive the Acura without it becoming detrimental to the car’s health? Is there anything I should be doing when I am driving it? Currently I drive it about 1 day every 2 weeks and make sure the A/C compressor is on.

2) How similar is the 6-speed transmission in the TSX to the 6-speed unit in the Civic Si. I’ve heard that’s a problematic transmission and that you should not skip-shift it. I’ve had no problems with the TSX’s transmission thus far. Your thoughts?

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Andy writes:

Sajeev, I enjoy your posts on TTAC and I wanted to ask a quick lease negotiation question. Currently BMW has very good lease rates on their 5 series models. Is there a smart way to renegotiate the 10k mile/year limit? That just seems like a lot of money for 10k miles per year.

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Chrysler once again topped Edmunds’ True Cost Of Incentive index last month, despite failing to significantly improve its sales over February 2009′s miserable showing. The only upside is that Chrysler basically held even with reduced incentives, as the entire industry is spending about 14 percent less on incentives than it did a year ago. Another interesting point of analysis from Edmunds:

Comparing all brands, in February smart spent the least, $341 followed by Scion at $426 per vehicle sold. At the other end of the spectrum, Lincoln spent the most, $5,568, followed by HUMMER at $5,195 per vehicle sold. Relative to their vehicle prices, Saturn and HUMMER spent the most, 14.9 percent and 13.6 percent of sticker price, respectively; while Porsche spent 1.4 and smart spent 2.3 percent.

But Toyota and GM will help carry those numbers up next month, with huge incentive spends planned. Meanwhile, after many automakers found religion about retail sales last year, fleet sales are back in a big way. And they’re no longer seen as something to be ashamed of.

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The underlying cause of GMAC’s failure was no different than so many other American financial institutions: giant bets on risky mortgages at the height of a real estate bubble. And though that error alone would have qualified GMAC for a bailout rescue along with the other failed banks, The WSJ reports that the ongoing support for GMAC is “reflects the troubled company’s importance to the revival of the auto industry.” And man, it had better be important. The GMAC bailout has been one of our least-favorite of the season, rewarding poor practices in auto and mortgage lending, and exposing taxpayers to inordinate risk. But, as TTAC warned back in the pre-bailout days, once the camel gets a nose into the tent, good luck getting it out. And so, GMAC will be receiving another $3.8b in TARP support, on top of the $12.5b it has already received. As a result, the US taxpayer’s stake in GMAC is expected to rise above the current 35 percent stake, just in time for more write-downs planned for the next week. The cash injection is said to prime GMAC for a profitable Q1 2010, erasing some giant losses in the bank’s ResCap mortgage unit. And of course the move will help GMAC continue to underwrite the leases that Chrysler and GM so desperately need, but can’t afford due to plummeting resales. GMAC’s bailout often doesn’t get marked up in the auto industry bailout tally, but at over $16b so far, it’s one of the crucial pieces keeping the zombie automakers shambling along. Now, about repayment…