GM to get out of the lease game in Canada

[njtex]

Originally Posted by PAULSTS1

Sunday Morning Salutations Spaz:

I have bad news for you, the banks are soon to follow Cerebus lead. I have been associated with the 2nd Largest bank in the USA, and years ago they acquired a large portfolio of leases from a failed bank. The acquisition was full of issues, most of the values of the vehicles coming back off lease were too low, making them paper losses. Our resale department, very cleverly re-wrote many of the leases and replaced the profit back in it. However with the ongoing (and don't be fooled, it is far worse than you think) Credit Crisis, most banks will eliminate: Student Loans, Sub-prime Real Estate loans, Leasing for domestic vehicles, and Lower Credit Card Approvals (based on higher FICO scores). The reason is the investment capital worldwide (about 70 trillion dollars) has completely dried up, it's just not there! If you doubt it try to get a personal loan, at any rate!

My advice to all who will listen: Get out of Debt as fast as you can! You may have to pay on your house, but few need as much Credit Card purchases, and replacement of vehicles; continuing the financing "trap." This problem will be revealed to be World wide very soon.

If this is true, it's really going to put the hurt on MB, BMW, and Lexus in the USA.

[New_Mexico_Sunset_on_Rt66]

Yea, this is bound to hurt.

I know business owners lease cars because you can write the lease off your taxes.

And what I understand about leases, is that the vehicle being leased is still an asset of the manufacturer. Once a car is sold, it is now on asset of the new owner.

[doh]

Originally Posted by fredi91

We just got word that GM is going to get out of the lease game by setting all rates to 'core' beginning August 1st.

Is this happening south of the border as well??

Chrysler did it 2 weeks ago, 12.2% across the board

[Rex Raider]

Although I can see/sympathize the reasons for doing this, I think that's an extreme jump. Just glanced through the Toronto star, and all Chrylser's ads are at 8.89% financing, and over 12% leasing, next to all the Hyundai/Ford/other ads at 0%, 0.9%, etc... and Toyota's at 3.9 to 6.9 (mostly advertising 09 models, not 08)

I think they need to do it in stages. At least finish out the 2008's at a low price, and introduce the new rates with the new models.

[Rex Raider]

Just found this link confirming:
http://www.canada.com/windsorstar/ne...html?id=680397

[PhishPhood]

Originally Posted by PA Dweller

Why does Chrysler need to do this? What happen to all this financial backing they were getting from their new owners?

There is almost no amount of financial backing that can cancel out the huge negative equity numbers being brought by the truck and SUV lease turn-ins now. The figures I've read in this thread amaze me, 50-85% of sold vehicles are leases? Holy .....

I'd guess that nearly all of these are closed end leases with guaranteed residual values. If GM and Chrysler were using optomistically high residuals on their SUVs and trucks of say 65% after 3 years then on a $30000 vehicle they should expect to take it back and auction it off for about $20000 thus breaking even.

Except now when they take these to auction there's either NO BID or the value is $10000-$12000, meaning that the leasing company GMAC has to 'eat' an $8000 - $10000 loss on every vehicle.

Multiply -$10000 x 1,000,000 off-lease vehicles annually and you get an annual exposure of ............ - $10 BILLION !!!!

GMAC has to get out of this business as fast as it can.

The other way of doing it in order to stay in the leasing business is to lower the residuals on these vehicles to actual auction values. The problem with this is that now the lessee instead of renting 1/3 of the vehicle for 3 years now has to rent 2/3 of the vehicle for 3 years. So effectively his payment doubles. If he was leasing a $30000 truck for say $350 a month with a $20000 residual he'd have to be looking at a $700 payment with a $10000 residual. At that price it's better to buy the truck.

[PA Dweller]

Originally Posted by PhishPhood

There is almost no amount of financial backing that can cancel out the huge negative equity numbers being brought by the truck and SUV lease turn-ins now. The figures I've read in this thread amaze me, 50-85% of sold vehicles are leases? Holy .....

I'd guess that nearly all of these are closed end leases with guaranteed residual values. If GM and Chrysler were using optomistically high residuals on their SUVs and trucks of say 65% after 3 years then on a $30000 vehicle they should expect to take it back and auction it off for about $20000 thus breaking even.

Except now when they take these to auction there's either NO BID or the value is $10000-$12000, meaning that the leasing company GMAC has to 'eat' an $8000 - $10000 loss on every vehicle.

Multiply -$10000 x 1,000,000 off-lease vehicles annually and you get an annual exposure of ............ - $10 BILLION !!!!

GMAC has to get out of this business as fast as it can.

The other way of doing it in order to stay in the leasing business is to lower the residuals on these vehicles to actual auction values. The problem with this is that now the lessee instead of renting 1/3 of the vehicle for 3 years now has to rent 2/3 of the vehicle for 3 years. So effectively his payment doubles. If he was leasing a $30000 truck for say $350 a month with a $20000 residual he'd have to be looking at a $700 payment with a $10000 residual. At that price it's better to buy the truck.

Thanks for the education, it's more complex than I expected.

[PhishPhood]

Originally Posted by Bvonscott

Great. So you can lease a import but not a domestic. Watch GM sales slide even more. STUPID STUPID STUPID.

As was mentioned several times above there is a whole new world order coming as concerns credit. Without top credit or a significant DP/positive equity entire segments of the population may be excluded from buying anything. No vehicles/makes are immune. Sequoias suck just as much as Tahoes and Expeditions.

A neighbor had a paid off Merc 350 Wagon that he wanted to trade on a $30000 vehicle even up. Original MSRP was $50000-ish. After 18 mo's and 13000 miles the auction value at trade was $21000.

[PhishPhood]

Originally Posted by New_Mexico_Sunset_on_Rt66

Yea, this is bound to hurt.

I know business owners lease cars because you can write the lease off your taxes.

And what I understand about leases, is that the vehicle being leased is still an asset of the manufacturer. Once a car is sold, it is now on asset of the new owner.

I've leased, currently have one, several vehicles over the last 40 yrs.

Actually it's a good thing for the manufacturer because when the lease is finalized they actually sell it to the leasing company, GMAC in this case. It's GMAC that 'owns' the vehicle. The customer rents it from GMAC. It's nearly exactly the same as renting an apartment. GMAC is the landlord. GM was the builder only and is nominally out of the picture.

The only issues for GM are that it still owns a significant share of GMAC and thus has to be aware of huge potential losses. In addition leases with attractive residual rates and/or low money factors made it easier to sell hard to move units. Now these hard to move units may never find a home.

So buyers have lost their Home Equity ATM as a source of funds.
Cheapo leases are drying up or are gone entirely.
Buyers are going to have to show impeccable credit... with, perhaps
A substantial Down Payment being required.

Most new vehicles being sold are autos.

This sounds like the 60's all over again.

[PA Dweller]

Originally Posted by PhishPhood

As was mentioned several times above there is a whole new world order coming as concerns credit. Without top credit or a significant DP/positive equity entire segments of the population may be excluded from buying anything. No vehicles/makes are immune. Sequoias suck just as much as Tahoes and Expeditions.

A neighbor had a paid off Merc 350 Wagon that he wanted to trade on a $30000 vehicle even up. Original MSRP was $50000-ish. After 18 mo's and 13000 miles the auction value at trade was $21000.

Is this a good or bad thing, and will this eventually happen to auto loans?

[sags]

One of the advantages of leasing a new vehicle every 3 years , is the vehicle is always under warranty. Another consideration is that taxes are only paid on the price of the car minus the residual value.

Residual values are only one part of the leasing equation. There is also the price of the vehicle, interest rates and the length of the lease.

Perhaps GM, Ford, and Chrysler would have been better off lowering the price, lowering the interest charges, and extending the terms of the lease, rather than folding up the program.

It doesn't surprise me they are in trouble though.

A few years ago, I "leased" an executive driven, miled out, fully loaded Yukon. After my employee discount, cash rebates, the PEP discount for executive driven kilometres, and an unusually high residual value, GM had to PAY ME 1200 to drive the vehicle for a year.

I kid you not.

And, they gave me 60,000 free kilometeres for the year.

Nothing wrong with the leasing concept, just the inept way they do the numbers.

[BGH]

So far it only seems limited to Canada. Anyone know why? I'm assuming because its a smaller market so the loss would be limited, And is this going to spread to the U.S.?

[PAULSTS1]

Originally Posted by BGH

So far it only seems limited to Canada. Anyone know why? I'm assuming because its a smaller market so the loss would be limited, And is this going to spread to the U.S.?

Canadian currency and the USA dollar are on parity, so it is reasonable to assume the same fate will befall USA customers. In fact with the Credit crisis, I would expect notification early next week, with the details of the changes.

For new vehicle launches this will greatly affect buyers as it will determine, whether or not a lot of buyers will even qualify for buying any new vehicle, whatsoever.

[PAULSTS1]

Originally Posted by Rex Raider

Just found this link confirming:
http://www.canada.com/windsorstar/ne...html?id=680397

Hi Rex:

The issue is 'residual value" at the time vehicles are turned in. This has been a problem in the past. If interest rates rise, which I predict will happen as we enter a global inflationary period, the cost of borrowering will automatically inflate as well. Actually it would be better to deny leasing for any non-2009 vehicle as the 2008 vehicles already are almost a year old, and have already depreciated, causing the values to drop.

I know this sounds complicated, watch Buickman's Update tomorrow, as he will have more information on the leasing update, from a professional's point of view.

[neshapop]

Car lease is just another scam to get people into a new purchase with barely enough money to have a new car (on the top of the pile of other loans+mortgage) and another tool for car makers to blow their sales reports.

And also great way to get the money from people how don't get the math right. If you cannot afford a new car - buy a used one!