Detroit's Losses Mean Higher Car Payments for Leases

[steinravnik]

Detroit's Losses Mean Higher Car Payments for Leases

Leasing a car is about to get more expensive.

Chrysler LLC, the money-losing automaker owned by Cerberus Capital Management LP, is closing its unprofitable leasing business today, and General Motors Corp. and Ford Motor Co. are scrapping leases for some models.

``People who want a lease will have to pay much more attention,'' said Joe Spina, an analyst at Edmunds.com, a car- buying Web site in Santa Monica, California. ``They'll need to crunch numbers harder and make sure it still makes sense.''

While finding a finance company gets trickier, declining resale values mean payments for a typical lease on a new $43,000 Grand Cherokee Overland SUV may climb as much as $70 a month to $840 from a year ago, industry analysts estimate. About 20 percent of U.S. new-vehicle sales have been leases this year, according to data compiled by researchers at J.D. Power & Associates in Westlake Village, California.

Chrysler today announced new terms for purchases aimed at lowering monthly payments. They include 72-month loans on a wider range of vehicles, $2,000 cash back and an extra $750 for returning leasing customers who buy a vehicle.

``The economics of leasing have changed,'' said Chrysler Financial spokeswoman Amber Gowen. The company is focusing more on making buying cars more attractive and supporting customers who want to purchase rather than lease, Gowen said.

http://www.bloomberg.com/apps/news?p...VDw&refer=home

[montrealvue]

People won't pay more for leases on American cars, they will just look elsewhere. Asian brands aren't burned to the same degree as the likes of GM and Chrysler. I would expect their lost sales to go to the likes of Honda, Toyota etc. The news just keeps getting better!

[Sal Collaziano]

I didn't read the whole article. Does it mention why foreign companies won't be hit as hard with this issue?

[fp115]

Why is Bloomberg so anti-Detroit? Have they not seen Honda, BMW et all raising interest prices too? Thought so. Everyone is getting burned on leases now, not only the big 3.

[Buickman]

GM's last bastion of loyal consumers is now under attack from within. the foolish offerings of $200 lease payments to employees on trucks is now coming home to roost. it was too low, and now too high. should have offered a reasonable middle ground to begin with and this troubled scenario wouldn't necessitate such dratic adjustment. another example of incompetent management. the market share date in the midwest is going to be very ugly soon.

[fp115]

Originally Posted by Buickman

the market share date in the midwest is going to be very ugly soon.

LAAM? How so?

[Buickman]

Originally Posted by fp115

LAAM? How so?

in this market, the majority of consumers lease, some dealers retail well in excess of 50% through leasing. these clients will not switch to long term financing. their loyalty to GM is greatly diminshed due to plant closures and wage/benefit reductions. the market will turn to manufacturers with supported, or normally strong, residuals and to pre-owned units. dealers dependent upon new vehicle deliveries had better re-strategize quickly, focusing on used, adding non-domestic franchises, streamlining operations, and building profitable back end business.

[Ed753]

Buickman is right fp, my last 2 trucks had an average MSRP of $36,000 with an average lease payment of $257 a month, buying the same 2 trucks over a 5 year term loan, I would have been looking at an average payment over $500.

Leasing gave me the benefit of changing the oil and rotating the tires, about the time it needed additional repairs/maintenance it was time to go back (tires, brakes, etc.)

Furthermore, I was confident, in my exposure, because I was always under bumber-to-bumber warranty.

I can handle the $4.00 a gallon gas, the rest I can not, my habits will change, result will be seen in 34 months...........

[fp115]

Originally Posted by Buickman

in this market, the majority of consumers lease, some dealers retail well in excess of 50% through leasing. these clients will not switch to long term financing. their loyalty to GM is greatly diminshed due to plant closures and wage/benefit reductions. the market will turn to manufacturers with supported, or normally strong, residuals and to pre-owned units. dealers dependent upon new vehicle deliveries had better re-strategize quickly, focusing on used, adding non-domestic franchises, streamlining operations, and building profitable back end business.

Leasing is market based more than anything though. Canada for example is going down the drain faster than any others. Back when leases were signed, we were under the assumption of 60 cents CDN vs 1 dollar USD. The steep rise of the Canadian economy and the resale value on trucks and SUV seem to have all hit at the same time. Making all leases basically worthless and a huge loss. US on the other hand isn't nearly as bad with leases since it doesn't have the same factors to worry about, though still has poor resale.

Canada leases accounts for just over 40% of all vehicles and the US is around 20%. From what I understand of my colleagues in LAAM is that the market is vastly different there. In the middle east for example, more than 95% of the vehicles are bought in cash. Many of these vehicles are used by the government for work and combat purposes. The general public there does NOT buy US made vehicles. Asia has a completely different financing agreement than that we have here in North America, GM will not kill leasing in Asia or Latin America for simple reasons, the markets there are vastly different and the economies aren't at all like they are here in North America. Resale values on the vehicles in those markets have barely changed. The only place you may notice a blip on resale value are chinese vehicles, but it isn't changing sale patterns all that much for GM.

What GM is trying to do with North America is attempt to plan the future. At this point it is very difficult to attempt to dictate where the market will be in 2-3 years from now. Will resale of cars tank? Will resale of trucks skyrocket back to the top? All what ifs, but none that will dictate a clear path as to what they should actually do. At this point taking any leases is a huge gamble. What GM is doing rather is making financing more attractive while leaving leases on some vehicles. Most people who get a Corvette would lease, now you can get 0% financing on a Corvette. This is in attempt to change buying habits and in the end it isn't all too different. It will help resale values to which the customer should have no problems with. Ask any customer and the reason they take lease over financing is because of lower monthly payments and not simply because it is a lease. There is a very small percentage of people who take leases because they want something new every few years, but you can still do it even if you finance.

[Ach]

Originally Posted by Sal Collaziano

I didn't read the whole article. Does it mention why foreign companies won't be hit as hard with this issue?

It doesn't, but I would guess that foreign cars (Japanese especially) have much better residuals as a general matter which would keep lease rates down. It does seem that this problem is most acute with full-sized pickups and SUVs.

But a little anecdote- the lease will be up soon on my wife's '06 Saturn VUE- she loves it and wanted to lease another one. But even after visiting three Saturn dealers (and I am comfortable with negotiating) the best we could do on a lease of a pretty basic '08 VUE XE 3.5 (cloth, no sunroof) was within $12/mo. of the lease on an Acura RDX (non-tech, so no Nav but still pretty loaded including Xenons, leather, roof, etc.) w/ same money down and mileage. MSRP of the Saturn was around 27K, the Acura around 34K. Guess which one she wants.

[Buickman]

Originally Posted by fp115

Leasing is market based more than anything though. Canada for example is going down the drain faster than any others. Back when leases were signed, we were under the assumption of 60 cents CDN vs 1 dollar USD. The steep rise of the Canadian economy and the resale value on trucks and SUV seem to have all hit at the same time. Making all leases basically worthless and a huge loss. US on the other hand isn't nearly as bad with leases since it doesn't have the same factors to worry about, though still has poor resale.

Canada leases accounts for just over 40% of all vehicles and the US is around 20%. From what I understand of my colleagues in LAAM is that the market is vastly different there. In the middle east for example, more than 95% of the vehicles are bought in cash. Many of these vehicles are used by the government for work and combat purposes. The general public there does NOT buy US made vehicles. Asia has a completely different financing agreement than that we have here in North America, GM will not kill leasing in Asia or Latin America for simple reasons, the markets there are vastly different and the economies aren't at all like they are here in North America. Resale values on the vehicles in those markets have barely changed. The only place you may notice a blip on resale value are chinese vehicles, but it isn't changing sale patterns all that much for GM.

What GM is trying to do with North America is attempt to plan the future. At this point it is very difficult to attempt to dictate where the market will be in 2-3 years from now. Will resale of cars tank? Will resale of trucks skyrocket back to the top? All what ifs, but none that will dictate a clear path as to what they should actually do. At this point taking any leases is a huge gamble. What GM is doing rather is making financing more attractive while leaving leases on some vehicles. Most people who get a Corvette would lease, now you can get 0% financing on a Corvette. This is in attempt to change buying habits and in the end it isn't all too different. It will help resale values to which the customer should have no problems with. Ask any customer and the reason they take lease over financing is because of lower monthly payments and not simply because it is a lease. There is a very small percentage of people who take leases because they want something new every few years, but you can still do it even if you finance.

here in Michigan I assure you people lease not only for the payment but for the desirable trading cycle. also we do not have tax on the difference like most states, therefore, leasing has an additional advantage. again I claim the trouble stems from bad management as oppsed to economic factors. not to discount the fuel prices, it's just that poor decisions are coming back to haunt. had our marketing been stronger, our resales would be higher and the depreciations not nearly as severe. ie BMW etc...

[Buickman]

Originally Posted by Ach

It doesn't, but I would guess that foreign cars (Japanese especially) have much better residuals as a general matter which would keep lease rates down. It does seem that this problem is most acute with full-sized pickups and SUVs.

But a little anecdote- the lease will be up soon on my wife's '06 Saturn VUE- she loves it and wanted to lease another one. But even after visiting three Saturn dealers (and I am comfortable with negotiating) the best we could do on a lease of a pretty basic '08 VUE XE 3.5 (cloth, no sunroof) was within $12/mo. of the lease on an Acura RDX (non-tech, so no Nav but still pretty loaded including Xenons, leather, roof, etc.) w/ same money down and mileage. MSRP of the Saturn was around 27K, the Acura around 34K. Guess which one she wants.

that my friend is only the tip of the iceberg.

[Ming]

What does this mean for those companies that make leasing their specialty, like Advantage Auto Leasing?

Good because they'll get the customers the car companies are leaving behind or just bad news all around?

[fp115]

Originally Posted by Buickman

here in Michigan I assure you people lease not only for the payment but for the desirable trading cycle. also we do not have tax on the difference like most states, therefore, leasing has an additional advantage. again I claim the trouble stems from bad management as oppsed to economic factors. not to discount the fuel prices, it's just that poor decisions are coming back to haunt. had our marketing been stronger, our resales would be higher and the depreciations not nearly as severe. ie BMW etc...

BMW announced that it is raising lease rates by 5-10%. Many of the asians have said to raise by as much as 5%. This isn't a management decision but a choice made on the outside. If my memory is good, Michigan's leases were slightly higher than the rest of US at about 30%. If you are in the more rural areas it may go as high as 45-60%. Leasing goes up where the general population tends to be less "lucky". Still the average of lease buyers are 20% in the US. GM may be early to the ending the lease program, but for once it was a move that was done on time in order to anticipate for the flaky market. All others are following, simply at their own pace. Do you think Ford, Honda, Nissan like to assume huge losses when they can do something about it? Leasing in general will go back to unsubsidized levels of 18-20% within the next year, not only for GM but for all automakers. Financing will be the new attractive option.

Originally Posted by Ach

But a little anecdote- the lease will be up soon on my wife's '06 Saturn VUE- she loves it and wanted to lease another one. But even after visiting three Saturn dealers (and I am comfortable with negotiating) the best we could do on a lease of a pretty basic '08 VUE XE 3.5 (cloth, no sunroof) was within $12/mo. of the lease on an Acura RDX (non-tech, so no Nav but still pretty loaded including Xenons, leather, roof, etc.) w/ same money down and mileage. MSRP of the Saturn was around 27K, the Acura around 34K. Guess which one she wants.

Not sure how that was all calculated. A lease on a Vue with an MSRP of about $27.5k comes up to about $490 a month. The RDX with about a $33.7k MSRP comes up to about $660 a month. Neither of which include taxes and down payments. Both are on 36 month terms. 72 months purchase financing on the Vue is $440 a month and for 48 months is $615. Sad part is that I priced out a Vue V6 AWD XR for that price, not an XE.

[fp115]

Originally Posted by Ming

What does this mean for those companies that make leasing their specialty, like Advantage Auto Leasing?

Good because they'll get the customers the car companies are leaving behind or just bad news all around?

Companies are now trying to take advantage of that. Many GM dealers for example are speaking with outside sources in order to have leasing done as before. The programs work, the only difference is that it isn't done through GMAC.