Study explores link between selling and leasing market <b>prices</b> for <b>cars</b> |
| Study explores link between selling and leasing market <b>prices</b> for <b>cars</b> Posted: 13 Feb 2014 04:00 PM PST Feb 13, 2014Changes in the selling prices of cars can be used to improve calculations for how much people should be paying to lease a vehicle, according to a new study. Researchers from Norwich Business School at the University of East Anglia (UEA) and Athens University of Economics and Business (AUEB) have for the first time modelled the relationship between variations in leasing and selling market prices, using almost 10 years of data from the US, the world's largest automobile market. They suggest that in order to determine more accurately the monthly payments agreed in leasing contracts, firms need to take into account the prevailing selling, also known as cash, price of vehicles. For households in developed countries the car is typically the second largest asset purchased after a house, and in the US a third of all cars sold are financed via leasing. The study, published this week in the Journal of Banking and Finance, finds that when selling prices go up in one month leasing rates tend to go down in the following months. Despite its importance, the link between leasing and selling markets for vehicles is not yet fully understood and the standard way companies calculate leasing rates ignores any interactions between the two. The researchers say this could lead to customers paying significantly more or less a month, while the firms could be incurring losses rather than making a profit. To address this problem they have developed a new pricing approach for lease vehicles, which allows changes in the selling market prices to have an effect on leasing market prices and vehicle values at the end of the contract. They use the example of a car worth $30,000 (USD) in the cash market which is leased for six months with a monthly finance rate of 1% and has a value of $25,000 at the end of the contract. Using actual market selling prices for a particular month, the traditional way of calculating the monthly instalment would result in the leasing firm undercharging by more than 40% per cent, or $466, a month. This is because selling prices increased significantly by over 1.5% that month and then leasing prices dropped, in line with the findings in the study, by a total of 2.61% over the next six months. Using the new model the study predicts a 1.77% decrease in lease prices over the six months and a lease payment calculation which is much closer to the fair price, since the difference is less than 5% or $73 a month. Although in this example consumers may seem to be better off, this is not the case when cash prices drop rather than increase, which is equally likely. Leasing firms may try to deal with the uncertainty in leasing rates and their profits by charging higher monthly instalments. Raphael Markellos, professor of finance at Norwich Business School, said: "The results suggest that we can make more accurate predictions about car leasing rates and residual values on the basis of cash prices. If the companies ignore this relationship, mistakes are more likely and sometimes these will benefit the consumer at the expense of the leasing firms, sometimes it will be the other way round. We are all much better off if we can reduce these mistakes as much as possible. This will allow firms to make better decisions which in turn can lead to significant savings for consumers who lease cars. "Our results also have potential implications for other durable good leasing markets, which range from commercial vehicles, home appliances and computers to property, aircraft and ships. We must keep in mind that this is a huge market, since in the US alone equipment leasing and finance is estimated to be worth more than $700 billion."
More information: The study 'Dynamic interaction between markets for leasing and selling automobiles', Dr Athanasios Andrikopoulos and Prof Raphael Markellos, is published in the Journal of Banking and Finance. Using price elasticity of demand to help determining a pricing policy? Feb 02, 2014 How can price elasticity of demand for some data help in determining a decision making process in a future pricing...Are social "Sciences" useful?Jan 28, 2014 Now I myself don't consider "social sciences" as a type of science... but do you think it's useful or not? I don't...Power calculations to get sample size needed to run an experimentJan 24, 2014 Hi everyone! I am writing a paper in development/experimental economics concerning how household bargaining power...Tax incidence and Price ElasticityJan 23, 2014 Hello everyone, I see that economists define a formula to calculate how the tax is shared between consumers and...More from Physics Forums - Social Sciences Related StoriesLease option increases rooftop solar's appeal, study says
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© Phys.org™ 2003-2013, Science X network  Feb 13, 2014Changes in the selling prices of cars can be used to improve calculations for how much people should be paying to lease a vehicle, according to a new study. Researchers from Norwich Business School at the University of East Anglia (UEA) and Athens University of Economics and Business (AUEB) have for the first time modelled the relationship between variations in leasing and selling market prices, using almost 10 years of data from the US, the world's largest automobile market. They suggest that in order to determine more accurately the monthly payments agreed in leasing contracts, firms need to take into account the prevailing selling, also known as cash, price of vehicles. For households in developed countries the car is typically the second largest asset purchased after a house, and in the US a third of all cars sold are financed via leasing. The study, published this week in the Journal of Banking and Finance, finds that when selling prices go up in one month leasing rates tend to go down in the following months. Despite its importance, the link between leasing and selling markets for vehicles is not yet fully understood and the standard way companies calculate leasing rates ignores any interactions between the two. The researchers say this could lead to customers paying significantly more or less a month, while the firms could be incurring losses rather than making a profit. To address this problem they have developed a new pricing approach for lease vehicles, which allows changes in the selling market prices to have an effect on leasing market prices and vehicle values at the end of the contract. They use the example of a car worth $30,000 (USD) in the cash market which is leased for six months with a monthly finance rate of 1% and has a value of $25,000 at the end of the contract. Using actual market selling prices for a particular month, the traditional way of calculating the monthly instalment would result in the leasing firm undercharging by more than 40% per cent, or $466, a month. This is because selling prices increased significantly by over 1.5% that month and then leasing prices dropped, in line with the findings in the study, by a total of 2.61% over the next six months. Using the new model the study predicts a 1.77% decrease in lease prices over the six months and a lease payment calculation which is much closer to the fair price, since the difference is less than 5% or $73 a month. Although in this example consumers may seem to be better off, this is not the case when cash prices drop rather than increase, which is equally likely. Leasing firms may try to deal with the uncertainty in leasing rates and their profits by charging higher monthly instalments. Raphael Markellos, professor of finance at Norwich Business School, said: "The results suggest that we can make more accurate predictions about car leasing rates and residual values on the basis of cash prices. If the companies ignore this relationship, mistakes are more likely and sometimes these will benefit the consumer at the expense of the leasing firms, sometimes it will be the other way round. We are all much better off if we can reduce these mistakes as much as possible. This will allow firms to make better decisions which in turn can lead to significant savings for consumers who lease cars. "Our results also have potential implications for other durable good leasing markets, which range from commercial vehicles, home appliances and computers to property, aircraft and ships. We must keep in mind that this is a huge market, since in the US alone equipment leasing and finance is estimated to be worth more than $700 billion."
More information: The study 'Dynamic interaction between markets for leasing and selling automobiles', Dr Athanasios Andrikopoulos and Prof Raphael Markellos, is published in the Journal of Banking and Finance. Using price elasticity of demand to help determining a pricing policy?Feb 02, 2014How can price elasticity of demand for some data help in determining a decision making process in a future pricing...Are social "Sciences" useful?Jan 28, 2014Now I myself don't consider "social sciences" as a type of science... but do you think it's useful or not? I don't...Power calculations to get sample size needed to run an experimentJan 24, 2014Hi everyone! I am writing a paper in development/experimental economics concerning how household bargaining power...Tax incidence and Price ElasticityJan 23, 2014Hello everyone, I see that economists define a formula to calculate how the tax is shared between consumers and...More from Physics Forums - Social Sciences Related StoriesLease option increases rooftop solar's appeal, study says
(PhysOrg.com) -- Rooftop solar panels are attracting a new demographic of customers who are choosing to lease rather than buy, and enjoying the low upfront costs and immediate savings.
Cheap leases offered to spur electric car sales (Update)
Auto companies are hoping lower lease prices can put a charge into sluggish electric car sales.
Auto sales rise as small cars enjoy summer surge
Pickup trucks may have led the charge, but strong sales of small cars in July showed demand for new vehicles is broad—and not slowing down. Calif. solar-power rebates might scorch lease market
Abundant sunshine has made Southern California one of the brightest markets for residential solar power in the country. Some might say too bright. Silicon Valley sees shortage of EV charge stations
An increasing number of electric-vehicle driving employees at Silicon Valley companies are finding it hard to access car-charging stations at work, creating incidents of "charge rage" among drivers. Buying a used car? Be sure to flatter the seller
Consumers set high prices when selling their possessions because they feel threatened, according to a new study in the Journal of Consumer Research. Recommended for you
Research on urban ghettos must recognize differences among cities
Research on urban neighborhoods must take into account differences among cities and rely on some techniques that have not been used extensively by sociologists studying neighborhood effects, according to ... ASU researcher explores responsible innovation
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In an age of specialization, building networks of outstanding scientists, engineers and clinicians is helping the development of creative solutions to complex societal needs. But how do you successfully surmount the barriers ... Longer commutes disadvantage African-American workers
African-Americans spend more time than any other group getting to work and in some cases spend about 15 minutes more a day than whites commuting, according to research by Virginia Parks, associate professor at the University ...
Aztec dog burial site found in Mexico City
Archaeologists on Friday announced the discovery of "an exceptional" old burial site under an apartment building in Mexico City containing the remains of 12 dogs, animals that had a major religious and symbolic ...
Mammoth tusk lifted from Seattle construction pit
To the sound of cheers, a fossilized mammoth tusk found in a Seattle construction site has been retrieved from a 30-foot-deep pit in downtown Seattle, and it's on its way to a museum. User comments : 0More news storiesASU researcher explores responsible innovationAn engineer works in the lab on a promising research project. He follows all the rules, works with the materials available to him and produces quality work. He never lies, cheats or steals. His research eventually results ...
Aztec dog burial site found in Mexico CityArchaeologists on Friday announced the discovery of "an exceptional" old burial site under an apartment building in Mexico City containing the remains of 12 dogs, animals that had a major religious and symbolic ...
Research on urban ghettos must recognize differences among citiesResearch on urban neighborhoods must take into account differences among cities and rely on some techniques that have not been used extensively by sociologists studying neighborhood effects, according to ... Longer commutes disadvantage African-American workersAfrican-Americans spend more time than any other group getting to work and in some cases spend about 15 minutes more a day than whites commuting, according to research by Virginia Parks, associate professor at the University ... University institutes are shaping future of researchIn an age of specialization, building networks of outstanding scientists, engineers and clinicians is helping the development of creative solutions to complex societal needs. But how do you successfully surmount the barriers ...
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New forms of racism arise in science researchAdvances in genetic sequencing are giving rise to a new era of scientific racism, despite decades of efforts to reverse attitudes used to justify the slave trade and Nazi theology, experts said on Friday.
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© Phys.org™ 2003-2013, Science X network  |
| Edmunds.com: Falling Used-<b>Car Prices</b> Likely to Affect All Buyers <b>...</b> Posted: 11 Feb 2014 12:00 AM PST SANTA MONICA, Calif. — A glut of vehicles hitting used-car lots will drive down prices as much as 2% this year, projects Edmunds.com, the premier destination for car shopping. And while that might be music to your ears if you're in the market for a used car, Edmunds.com says that the trend will likely cause a ripple effect, influencing shoppers of both new and used cars. "Many car shoppers might not realize how much the new- and used-car markets feed off each other," said Philip Reed, Edmunds.com senior consumer advice editor. "The boom in new-car leases, for example, is leading to a higher number of lease returns, which adds to the growing inventory of used cars, forcing their prices down." But the drop in use-car values, cautions Reed, could raise the monthly payments of new-car leases. Softer "residual values" — declines in what a car is worth at the end of the lease — are likely to cause higher monthly payments to make up the difference. Edmunds.com pricing experts also expect the following changes in the coming year as used car prices fall:
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