I think the competitors like BMW have spent a fortune to pick up the market share they picked up (through leasing). … We’re not going to go in and offer giveaway leases with a premium brand.
Cadillac sales boss Ed Peper in a Wall Street Journal piece detailing Cadillac’s inability to sell (and now, lease) its vehicles. “Our business used to be about 65% leasing,” one Cadillac dealer explains. “We’re currently running at about 5% lease [and] we are continuing to lose people who we used to be able to go from one Cadillac lease to the next.” Despite the Beemer-bashing, Peper says Cadillac is looking at increasing lease percentages by “getting more aggressive with leasing each month.” After all, it’s not that Cadillac doesn’t want to lease. The problem is that GM doesn’t have a captive lender anymore who is willing to subsidize the leases that Cadillac’s business depends on.
Good luck with that.
One of the biggest issues with leasing these days is residual value. What’s the damn thing going to be worth in three years? Lots of leasing companies took it in the shorts when Escalades came off lease with market values $10k under residual. Lease to purchase conversion fell to zero. And it was not just Cadillac.
Twotone
What Peper is waiting for is the fallout over the GM BK to settle so that resale values can stabilize. And if there’s any division of GM that can happen for, it’s Caddy.
Peper’s right about BMW’s lease programs…in the long run, they don’t help resale vaule. When the cars are turned in after the lease, they become CPO vehicles, and cannbibalize new car sales. That, in turn, hurts resale values, which in turn hurts the lease deals on new cars.
twotone :
September 23rd, 2009 at 5:23 pm
One of the biggest issues with leasing these days is residual value. What’s the damn thing going to be worth in three years? Lots of leasing companies took it in the shorts when Escalades came off lease with market value $10k under residual. Lease to purchase conversion fell to zero. And it was not just Cadillac.
Pretty much ANY SUV leased before the market for them crashed had the same problem.
On the other hand, some brands fared quite well. My mom was going to turn in her ’06 Infiniti G35, but she had equity (fancy that!), so she traded it instead.
Oh please. Let’s see what tune this guy starts whistling as more inventory sits on the lot because people aren’t willing to spend anything close to MSRP on Cadillacs. Leasing needs to be subsidized to move the metal. Ask BMW!
@FreedMike:
Peper’s right about BMW’s lease programs…in the long run, they don’t help resale vaule.
I don’t know about that. Check out this link to Cars.com, and select what car you want to view residual values of.
http://www.cars.com/go/alg/index.jsp
BMW has relied HEAVILY on subsidized leases, yet comparing retained value after 36 months, they’re still retaining 45-50% of their value. Compare this to Cadillac who retains 40-45%.
Reality is that if Cadillac made more desirable cars and trucks, residuals would follow.
CPO cars help resale more than they hurt it. Yes, they do occasionally ‘steal’ a new car sale, but overall CPO is about controlling and raising transaction prices on used cars.
Ford is in the middle of making a huge CPO push right now, including offering 100K mile powertrain warranties on Ford/Mercuries and 100K mile bumper to bumper on CPO Lincolns. The overall goal is to get the used car values high enough that residuals will be strong when full-line leasing returns in the future.
Leasing with fantasy residuals is the primary way through which premium brands put cash on the hood without being seen to discount their wares. This is particularly important for the higher end of the range.
Maybe this is a dumb question.. but how are they going to move all of this left over inventory? Isn’t that the fundamental goal in designing a car? To move inventory?
Leasing lends itself to to two types of transactions:
1. Where the vehicle can be written off on taxes, or
2. To people who can’t afford them and shouldn’t be getting into Caddies in the first place.
I’d say the economy has just about wreaked havoc with both segments.
The only ones really hurting are the repo men who make their living off of leases which always make you upside down from day 1.
Not to nitpic Ed, but BMW cars are called Bimmers. Beemer is the term used for BMW motorcycles.
Commando –
It also works out well for those who want a new car every two or three years. Unless you pay cash upfront or put a lot of money down, you are going to be upside down on your loan after two years, and most likely still after three, leasing allows those who have to always have something new to do it without piling on negative equity from one loan to the next.
Most telling is the dealer who said 55% of his business was lease. Cadillac either has to compete with other luxury brands on leasing or lose the business to them. Obviously no one is going to pay more to drive a Cadillac either through uncompetitive leasing programs or purchasing the vehicle which would result in a considerably higher payment.
This is a no brainer marketing decision.
A lease can make sense if you want to “try” a car before you buy. On the other hand, leases dilute the “prestige” of any lux brand to the point where secretaries in the typing pool now come to work in ultimate driving machines. In any case, I’m not sure that leasing makes much sense today inasmuch as many brands are offering ridiculously low interest rates for buying (this requires a good credit score). I know that, for instance, VW is offering no interest loans for the life of the loan. In this instance, what’s the point of leasing?
@NulloModo:
I have to disagree with you on this. No matter how you do the math, leasing is more expensive than buying.
The exception being, is if you get to write off the lease payments, the taxpayers are subsidizing you.
But to really get back to EC101, if you’re getting a new vehicle every two – three years and you’re not putting on extra-ordinary high miles, you’re spending too much money regardless of how you acquire it.
I’m trying to figure out where all these subsidized leases are? Maybe I’m just a crappy negotiator.
If you refuse to make a “down payment” on a lease, as I do, lease payments are as high or higher than purchase payments. So what’s the point?
Now, if you trade in a $10k car and lease your new one, you’ve just made a huge down payment, and your payment will be low. But otherwise, I’ve never seen it. I guess I’m the only one!
Cry me a river Cadillac.
So you’ve discovered the rebadged Tahoe’s value sinks like a rock? Now you can’t lease the ‘Slade to the yahoos who like to Dub them up and pimp them out?
Too freaking bad.
Leasing in many instances is far less expensive than buying. The monthly payment is considerably lower and as stated at the end of the lease there is not the negative equity there would be with a conventional loan. That is a well known fact about leasing versus buying.
From a tax write off standpoint you can write off as much of a purchase as you can a lease. Leasing is not a possible tax advantage.
No matter how you do the math, leasing is more expensive than buying.
Not at all! If you paid $64,000 cash for an Escalade in 2006 it would now be worth $26,839.
If you had leased it for $799 a month you would have saved a total of $11,367 over three years vs. buying new. When you returned it after the end of the lease it would be GMAC that had to eat the 11k loss.
GM VPS sicken me. The only thing they ever try to do is come up with EXCUSES for their DISMAL FAILURES. And they are really , really LAME and pathetic excuses at that.
I will not dignify this clown Peper’s excuses with a response. I’m sick of subsidizing these losers to the tune of $100 billion. With all that support, they, if theyu were even remotely competent at GM, would RULE THE WORLD. Not act like eighth graders dog ate my homework excuse queens all the time.
I hope I do not hear from this Ed Peper and esp, that idiot Mark LaNeve clowns EVER AGAIN.
Touche, guys. You’re correct.
I didn’t take into account the cars where their residual value drops like a brick and the leassor is left holding the bag.
@Numodo
You have a point there. Most people that lease cars have the benefit of changing their cars every couple years and having a factory warranty in place. There is some savings in leasing that you don’t necessarily get when you purchase.
I have leased cars a couple of times when the subsidies were so good that it just made sense and I was able to get substantial discounts on the price of the car on top of the inflated residuals and near 0% interest on the lease money.
That said, it’s still more expensive than buying a used car and depending on the whole deal CAN be a better deal than financing a new car, especially if you don’t plan to hang on to it forever.
That said, my real question here is which of the highly-paid GM executives who planned the sale of GMAC to Cerberus for a short-term cash infusion didn’t see this issue coming? Without a captive finance arm it was inevitable that GM would have issues competing on financing and leasing for retail customers, no?
I don’t understand this. If a captive leasing company is giving uneconomic leases, then GM is putting money in, right? So why not just lower the price? Is it that important to maintain the illusion of a certain price?
These kind of games are what put me off car buying.