We hear from various sources that GM is about to follow Chrysler's lead and stop leasing its vehicles in the North American market. The move is not entirely unexpected; the company that owns the now non-leasing Chrysler Financial– Cerberus– also owns 51 percent of GM's vehicle financing arm, GMAC. Canada's Windsor Star reports GM's no-deal as a done deal. "The financial arms of Chrysler LLC and General Motors Corp. are getting out of the business of leasing vehicles as credit tightens and resale prices for gas-quaffing trucks fall, according to company executives and independent sources." Quaffing? Don't all ICE vehicles quaff? Anyway, the lease cessation is bad news for ChryCo and GM dealers north of the border. "In Canada, an estimated 43% of drivers lease their vehicles, double the U.S. rate of 20%." Ouch. You know residuals are in free fall when a financing company walks away from that kind of action. Meanwhile… "Geoff Helby, an analyst with J.D. Power & Associates in Toronto, said Toyota Motor Corp. and other automakers that offer attractive lease rates and decent residual values could win more business from the Detroit automakers as a result of the move. 'It would definitely put Chrysler and GM at a serious disadvantage.'" Make that "will."
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Announcing the revolutionary GM “You Keep The Car At The End of the Lease” Lease!
It’s all in how you present it.
The residual value conumdrum. This has been at the heart of the domestic makers for at least 20 years.
It can clearly be said, unless a car is desirable (hot) during it’s initial sales it has no chance of having any acceptable resale value. When it comes to hot brands, the domestics can count them on one hand. Then a second thing seems to happen. With no tenacity (ability) to build brands over many years, even the hot models begin to cool.
Let’s see, the first CTS Cadi’s, Chysler 300, Ford Mustang, chrysker PT cruiser. They just don’t have the staying power of an A brand Japanese or top German car. They are not desirable in the used market, probably because the new buyer does not long for a new one of these models and is not willing to accept the next best thing a used poorly selling car.
This trend was evident long before the new gas “crisis” but was well hidden by the trucks and SUV’s which both made money and kept the most resale value of any domestic models. Take away this foundation block, and the rest of the domestic model line is a house of cards.
Just retooling to build small cars does not assure the American consumer will still not prefer the foreign products for the same reasons: strong branding, high resale, good reliability.
If the domestics have to go out on a discounting frenzy for $15K cars profits will not exist. Will the clock run out on Detroit while they are busy catching the competition in this new marketplace?
Assuming this is accurate, which will be more severely affected; GM or Chrysler? And which can last longer?
Selling Ford’s I frequently lost lease business to the Japanese brands due to the residual values. Ford has tried over the last 2 years to minimize the rebates – hence the lower sales and all those dealers going belly up, but for 09 the residuals are starting out much lower than 08 is ending – yes the 08 year end residual values are HIGHER then the 09s are starting at. Particularly disappointing was the 52% 36 month residual on the 09 MKS.
I now sell Hyundais, and they really don’t bother much with leasing – for obvious reasons…
When your product is not holdng up, how do u expect the residual to worth anything.
At this trying times the big3’s residuals are not alone to be tanked.
BMW, & Mercedes all have to write off their residuals too.
The Japs make solid cars so the resale is going to worth a certain values. Basically they dont depreciate much either.
When the car does not worth the residual, Leasing co. has to make up the short fall. Thats not funny anymore.
To increase residual value a car has to be in demand on the used market. To be in demand as a used car the model must not be over-produced and sold in droves through rental fleets, it must be reliable, and it must stand the test of time in regards to features and styling.
The Japanese brands have consistently done best in the first category, but in recent years the domestics have really caught up (and in some cases even matched with the recent JD Power surveys equalling Ford in quality with Toyota).
Chrysler getting out of leasing is a no-brainer, as the company doesn’t really make anything that fits well into the high-residual mold, GM, however, it seems should just limit the models it allows leases on. Stop leasing trucks and most SUVs, as well as the cars that are overall not competitive (Cobalt, HHR, Impala, G5, etc) but keep them on the vehicles that, while not being top notch, at least should be able to hold decent value due to either selling well or being overall solid cars (Malibu, Enclave, G8, CTS, etc).
The biggest thing though, stop dumping tons of cars off to rental fleets. IMO each of the big three should make rental exclusive models that aren’t sold through the retail channel, that way when those are dumped back onto the market it doesn’t hurt the value of those sold through the lots.
If you are Cerberus, and you exit leasing…what’s the value left in GMAC/CFC? The captives owned the lease market, but purchase contracts are pretty competitive.
This is going to put a world of hurt on Cadillac if it happens.
It isn’t just the domestics that take a pasting on residuals. We’re getting Infiniti M35 lease returns with payoffs around $34k, when we can by them all day long at auction for $22-$24k
I made a point that only certain foreign brands have good residuals. The A brand Japanese mostly Honda & Toyota, certain German cars, Volkswagen, porsche, BMW3 & 5 series. No one has a lock on every model that they sell being strong. However GM Ford and Chrysler have weak brands in everything now that the trucks and SUV’s have tanked.
How did they stay 1,2, & 3 in America as long as they did? By over producing, discount selling, and brand trashing? It took this latest fuel crisi to push all three of them over the brink. Perhaps the big banks this time will not go to the brink as they did with housing, and cut off this foolishness. The bloggers know the reasons (above stated) why the residuals are weak. Do they know that other than the last unexpected hit with the trucks & SUV’s the weak residuals were all published early by the rating companies. It was not a guess that many of these big three leases were losers at the outset.
But, when you have to run your plants to satisfy contracts (supplier & union) and you are say 50% bigger than your real sales, these “cheap leases” and the ever present cash back offers are needed to clear the dealers lots so that you can do what? Do it all over again. Now this is madness.
I think the joke about the zero-residual lease applies.
Yes, Robert…ALL ICE VEHICLES “QUAFF”.
Even my Prius, although it doesn’t quaff as much in normal driving, and not at all at traffic lights or when I’m going downhill or with a tailwind.
But I still put 9+ gallons in it yesterday, after only 430 miles during 8 days of driving. That’s still a quaff in my book.
I’ve never liked the term “fuel sipping” when applied to cars.
I leased a Civic one time and later bought the car. Then when the car was about four years old, I thought about trading it in and the dealer offered me a very good deal for it. At the time I was told that Honda does very well selling their used cars, so I can see why they for one will continue to lease.
NulloModo,
I think that is a great idea. GM should not sell any current models in the rental market — just extend the previous generation model’s production. For example, GM could have just kept pumping out the last-gen Malibu for a few years to sell to Hertz.
Let’s come up with all the possible “creative spins” on this.
I’ll get us started with a few:
“The open, open, really open-ended lease.”
“GM. Making leasing history. Um, we mean ‘making leasing, history’. ”
“GMAC: you lease it, you bought it.”
“GM: would you like to finance, or, um ‘rent-to-own’?”
I posted an entry to my blog a few weeks ago about how the manufacturers were going to suffer huge losses from lease returns.
SUVs aren’t the only vehicles affected. As someone else here pointed out, resale values for luxury cars are also in freefall. One of my panel members turned in a BMW 545i even though BMW offered to knock $5,000 off the price if he paid to keep the car.
Third party lessors MIGHT be in a better position. A friend tells me that they usually buy insurance to cover lower-than-expected residuals. But even if this is the case, how high must the premiums on such policies be now?