As recently as a few months ago, GMAC was the largest auto lender in the United States. Automotive leases constituted over ten percent of their business. One credit crunch later, the Cerberus-owned financing company has almost completely stopped writing car leases, which now account for only two percent of GM’s new car sales. And though such depreciation machines as Chrysler have stopped leasing altogether, leases still make up some 12 percent of the American new car market. Automotive News [sub] reports that GM Marketing Maven Mark LaNeve wants GMAC to loosen up its leasing policy– a move the GMAC boys view as about as desireable as Thunderbird wine. Until bailout bucks stabilize credit markets, bundled auto lease paper will continue to be ignored by investors. And that means GM is at the mercy of its once-captive finance company. Moreover, thanks to GMAC’s private ownership, there’s no telling what the status of its lease and loan holdings are currently, particularly for its ResCap mortgage arm. With GM insisting that GMAC get back its leasing religion, the two firms seem locked in a death-embrace. GM needs leases to move product, and doesn’t mind offloading the risk on its former subsidiary. Until GMAC goes down of course. In that scenario, GM will have far more to worry about that leasing volume.
as usual, no one is held responsible.
It appears the answer to your question is “not much”.
GM’s leasing plan was to lease the vehicle today to make $3,000 then take it back at the end of the lease to lose $5000 thanks to ridiculous residual values.
Does anyone wonder why GMAC isn’t interested in leasing.
Isn’t this an example of why GM should have never sold controlling interest in its “captive” finance arm in the first place?
Remember, folks; GM sold 51% of GMAC so that the bad debts of GM would not reflect on GMAC, allowing GMAC to go ahead and suck money out of the “system” at a better interest rate, increasing profits (that’s a funny one) for both GMAC and GM. (OK, that was the plan, anyway).
Given the law of unintended consequences, now that the Econopolypse is upon us, GMAC isn’t taking the losses “for the GM team” on leases any more – since they’re now in an independent league. So to speak.
GMAC is also in the real estate and mortgage biz, so it’s a triple ouch for them.
Possibility number 1: The economy sucks, GM goes Ch. 11 – The residual value of GMs tanks and a number of lessees default.
Possibility number 2: The economy does well (ha!), global economic health forces oil above $200 – The residual value of GM SUVs tanks.
A 25 year GMAC employee told me in confidence a few days ago that he wanted to retire in 5 years. This is what stunned me…” I sure hope we last that long.”
It sounds like they’ll be lucky to last 5 weeks.
This won’t solve the lease problem one way or another, but I’m thinking this is a great time for Congress to end the tax deductibility of leases for businesses except for bona fide pick-up/work/delivery vehicles. For years, there’s been a generous subsidy in the form of tax deductibility for leasing expensive autos for people who own their own businesses (doctors, lawyers, real estate agents, accountants etc.) Now that the domestic auto industry is pretty much out of the leasing business, this would be a prime time to end tax deductibility of auto leases. Basically, it is a large subsidy to already rich people to buy what are now almost exclusively foreign autos. Why should doctor x or lawyer y get essentially a 35% discount on their car payment for their S-Class when Joe six-pack has to struggle to pay for their Focus without any help? This boondoggle has never been justified, but it is beyond not justified now given that it is a direct subsidy to foregn auto companies without any benfit for the domestics. Any senators read TTAC? (as if!)
Just checked the stock market report, GM market cap is down to $4.7 billion dollars and the stock just hit a 54 year low (adjusted for inflation). Ford has sunk to $3.40 per share.
Does anyone really think these companies can avoid bankruptcy, I mean really?
leases still make up some 12 percent of the American new car market
I wonder what is the percentage of the new car market for luxury vehicles. 12%?
Bundling is a financial term for putting a bunch of rotten eggs in a pretty basket. They would be much better off selling the loans off singly to individual investors.
Leases are the sub prime mortgage of the auto industry.
On the bright side I’m almost able to buy GM in my IRA. I mean, buy out the whole corporation. What would I do with it??
leases still make up some 12 percent of the American new car market
I’m surprised it’s that low TBH.
GM Marketing Maven Mark LaNeve wants GMAC to loosen up its leasing policy
Of course he does… It’s not his or GM’s ass on the line if they do.
Deepsouth:
A 25 year GMAC employee told me in confidence a few days ago that he wanted to retire in 5 years. This is what stunned me…” I sure hope we last that long.”
I long ago lost my ability to be shocked at the myopia of domestic auto workers.
And while I have some love for certain GM/Ford vehicles, I wouldn’t buy anything they make new or warranty.
GMAC’s job is to lose money.
Scott,
Owning a business does not make you rich, it makes you work your ass off.
The reason many businesses choose to lease, rather than buy, is to avoid being trapped into stupid depreciation rates which reduce the businesses flexibility.
Imagine if you have a fleet of purchased trucks and are locked into a depreciation schedule that forces you to keep them for years, but gas doubles or triples in price after the purchase. (Never gonna happen, right?) The surge in gas prices is tripling the costs of running the fleet, and putting a real crimp in cash flow and margins.
Your competitor leases his trucks for 2 years at a time, so he can “opt” out of the present trucks in another few months and move over to say a Sprinter that gets 3x the mileage of the existing trucks.
Business leases are more about flex, cash flow and depreciation advantages than bottom line costs. Wanna deliver another blow to the economy? Kill leasing and force everyone to purchase, then see what happens to the Medium and Heavy Duty Truck market.