Love 'Em or Hate 'Em, Wall Street Bonuses Buy a Lot of Luxury Cars
Us working stiffs may resent fat Wall Street bonuses, but they're great for luxury-car dealers.
Wall Street bonuses and year-end luxury-car deals will drive 2010 U.S. auto sales to a boffo finish in December. December sales should easily top 1 million, including a high proportion of luxury cars like Mercedes-Benz, BMW and Lexus.
That's fairly typical for the last decade or so. December has become the biggest month of the year for luxury-car sales. That's partly because business plans revolve around the calendar year, and partly because the car companies offer their best deals of the year, to make sure they hit their annual sales targets.
Leasing is also a factor in perpetuating the December bump in auto sales. Luxury cars are much more likely to be leased. Leasing offers a cheaper monthly payment, so people can afford a more expensive car than they would otherwise buy.
A lease customer only has to borrow the difference between the upfront cost of a car and what it's worth at the end of the lease, better known as the residual value. The downside is, the lease customer has no equity and no trade-in at the end of the lease.
A loan customer can sell their car any time they want, but lease customers tend to keep their cars until the end of the lease -- in fact, there may be financial penalties for terminating a lease early. Therefore, leases that are originated in December tend to expire in December, two, three or four years down the road.
December auto sales often are higher than average for the whole industry, second only to the fall model-year changeover. An exception was 2008, when the economic crisis and layoffs cut into Wall Street bonuses.
In 2008, December auto sales accounted for just under 7 percent of the total for the year, according to AutoData. In 2009, December rebounded to just under 10 percent of the total year's sales. December sales this year should be comparable.
With help from government bailouts, Wall Street rebounded in 2009, according to New York State Comptroller Thomas DiNapoli. He said in an announcement last week that financial services companies in the state were on a pace to earn $19 billion in 2010. That's down from 2009, but still likely to be Wall Street's fourth-best year ever.
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Photo: Mercedes-Benz