While Chrysler and GMAC are cutting out leasing altogether, Ford is just raising lease prices on its sucky-residual trucks and SUVs to make them "lease proof." The Wall Street Journal reports Ford officials sent a memo to dealers Monday that said "due to extreme losses Ford Credit is taking on off-lease vehicles, it will be necessary for Ford Motor Credit Company to adjust residuals mid-quarter on the following vehicle lines." The memo specifies the Ford F-150 and Super Duty pickups, and the Ford Explorer and Sport Trac SUVs. They're raising lease prices so high customers won't agree to the terms. [NB: We've predicted this de facto exit from leasing for GM.] Last week, Ford revealed that average auction values for 24- and 36-month lease vehicles were down $2.7k and $2.4k each, respectively. In its recent financial statements, FoMoCo wrote-off $2.1b for leasing losses.
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I still can’t believe they didn’t see this coming. Then again, there’s a good chance these institutions have a culture of firing/demoting whistleblowers.
I guess those people who got a 2 year lease on an Pickup 2 years ago are actually coming out ahead versus buying the truck. Interesting. Or does the customer also get screwed when the lease is up and the residuals are way down? I never leased, so I don’t know the details.
miked
with a close end lease (which most are). the final price for the car is set when you buy it.
At the end of the lease you can purchase the car for that set price, or walk away. The automaker banked on the car/truck being worth at least what the final price is when the lease was made.
some banks have open ended leases… where the final price of the car is market rate
Well kudos to Ford for at least attempting to see what the lease market will bear. So they have adjusted the leases to match the market reality of the residual value. Good.
They may find that with the tightening credit market, normal car loans will also become more expensive. Tapping a low cost HEL to buy a car is becoming impossible for more and more people. They may find that more expensive leases could be competitive in the right circumstances.
The bottom line is: financing a car in the future is just going to cost more.
Of course this will impact the ability of dealers to sell cars. This problem is like pressing a balloon. They can squeeze one end only to have the problem simply move to another part of the process.
Like I said in a previous post, I believe that Ford will be better off doing this than exiting leasing, mainly because they have the chance of getting a nice dead cat bounce from GM and Chrysler.
Can this be like a novel, and this be foreshadowing what happens when it comes time for the C11 round? GM and Chrysler will file, but Ford will stand strong and get a nice dead cat bounce from their cross town rivals, keeping it afloat long enough to get the new Euro models here.
I see this whole situation as further proof that Ford will be the only one left standing when this is all over.
A few months ago, a recently-widowed friend of my parents asked for my help buying a new vehicle. Her 2005 Expedition was only two weeks away from the end of it’s 36-month lease and she definitely wasn’t interested in buying it.
The dealer all practically begged her to buy it when I went with her to turn it in. I pointed out the window to the new Honda CR-V that she’d already purchased and told him we weren’t interested.
The residual value per the lease terms was almost $7k above the going rate for similar vehicles on AutoTrader.com. She really dodged a bullet by leasing instead of buying!
>> The bottom line is: financing a car in the future is just going to cost more.
So far at least that does not seem to be the case with all the domestics offering 72 months interest free financing.
So far at least that does not seem to be the case with all the domestics offering 72 months interest free financing.
Yes… it will cost more, for someone.
Like I said in a previous post, I believe that Ford will be better off doing this than exiting leasing, mainly because they have the chance of getting a nice dead cat bounce from GM and Chrysle
Sorry to take the thread in another direction, but-
My thinking is there is no “last man standing”. If there was, then the LMS is stuck with current cost structure and contractual obligations while the other two get to restructure. I think as soon as one of them files the other two will file in short order.
Ford is being much smarter than the other two about this. Make lease terms reflective of the new miserable residuals on certain vehicles classes without getting out of the business all together. Change the bathwater without tossing the baby.
“I guess those people who got a 2 year lease on an Pickup 2 years ago are actually coming out ahead versus buying the truck.”
Absolutely. As I have pointed out in other leasing discussions here, one big advantage to a lease is that you get the eventual “trade-in” value of the vehicle nailed down AT THE TIME THE ORIGINAL DEAL IS DONE. For those who like a new trend-of-the-moment vehicle every 2-4 years this can be a real advantage. If, come the end of the lease, you want to keep the thing … just pay the previously negotiated residual value. So, if the market value for your vehicle is better than expected at the end of the lease, you win. If it is lower than expected, the leasing company looses. Personally I’m not a new-every-three kind of guy and I haven’t leased. But if I was, I would.
THIS is the exact right way to do this. Don’t give up leases altogether, just make them wildly unattractive for the exact lines where you’ve been losing money. You still provide the option for leases on sedans (where it’s still profitable) and avoid bad press. GM and Chrysler are doing it all wrong.
Bravo, Ford. Bravo.
We’ve characterized this as if Ford is purposefully changing lease terms to avoid giving out leases. In reality, the lease market is all but dead for trucks right now because of book value of truck returns. Basically, lease rates are determined by wholesale residuals and how you account for them in your finances. Residuals on just about every large vehicle have imploded. What is Ford
(or others) supposed to do? Continue offering good leases and writing down thousands of bucks per vehicle upon return? No one is stupid enough to lose money that way.
Until there is clearer visibility into the medium-term residuals of trucks, no one is going to offer attractive leases. The local Toyota dealers won’t let you lease a Tundra right now. The Honda dealer lease rates have jumped significantly too. This isn’t just a plague on the Detroit automakers – it just affects them more because they have more trucks in their fleets.
Where can a consumer learn the wholesale residuals for a given car or truck model?
They way the industry is going they’ll soon have to pay the customer to take a car off their hands. No Sympathhy – ever increasing profits over the years and sweet f.a consideration for the public deserves what it reaps
Why ANYONE would buy a domestic branded vehicle at this point (unless the plan it to drive it for 5+ years) defies logic/common sense.
The barely-adequate-2.8 no longer back lease deals on their own vehicles. They’re all-but-screaming it from the rooftops- “Even we don’t think our vehicles are a wise investment and their value will continue to plummet!”
Meanwhile, a 36-month lease on a new Accord LX will run you $219 per month! =0
Why is GM or Chrysler going broke going to change anything? I still think it is inevitable and I still think it hold the potential to change the big 3 to something better than it is now but…
…but Chrysler went down a road similar to this in the 1980s. Now 20+ years later we are right back where they were back then. Have the big three not learned anything from all of this?
Chrysler did not shed the unions, the contracts, or alot of dead weight in the management ranks did they? Clue me in – not very clear on the facts about Chrysler.
One way or another – leasing or buying new every three years is an expensive set of lifestyle choices.