You may be wondering why the mainstream automotive press hasn't carried our story about GMAC's exit from the GM leasing biz. I've re-checked with my sources. Although there's a lot of confusion out there– at the corporate and dealer level– we stand by our story. In Canada, GMAC leases are dead. In the U.S., GM and GMAC will avoid a media shitstorm by "refocusing" its dealer finance products away from leasing. In that regard, GM will do whatever it takes to keep monthly payments roughly even on a finance versus a lease contract. They will promote longer term finance contracts with subvented rates on most lines, and combine that with "finance cash." Or they will offer customers cashbacks for use in cash deals or financing/leasing by third party sources such as a bank or finance company. (For example, a GM half-ton truck will receive zero percent financing for up to 72 months plus finance cash of $3K or a cashback incentive of $5,000.) We hear that GM will support leasing until Thursday night; the full changeover of finance/cash incentives will not hit until first thing Friday morning. (Just in time to get lost over the weekend, as usual.) Dealers speculate there will be a lot of fiddling with the incentive programs over the next few months to see what has the most customer appeal. But incentives there will be, and LOTS of them. [hat tip to you-know-who-you-are]

To loan money to its lease customers, GMAC borrows the bucks from large-scale institutional investors. The money is backed by assets: the leased vehicles. GMAC "investors" are scared shitless [parphrasing] by the huge drop in Chrysler and GM products' residual values. But as bad as that is, the REAL fear is that Chrysler or GM will go belly-up. Once an automaker files for Chapter 11, the value of the leased vehicles craters deeply and completely, leaving the bankers exposed to billions and billions of dollars of EXTRA losses. There are lots of implications to this announcement. For one, as reported yesterday, GM stands to write-off over a billion dollars in lost residuals– which they paid up front to GMAC. For another, GM owns 49 percent of GMAC. (Chrysler's owners Cerberus own the other 51 percent.) GMAC's exposure to the gap in residual values is around $3.5b. And another: Cadillac/Saab's inability to lease their vehicles is going to cost them BIG in sales and market share (GM's other higher dollar rigs will be hurt by a lesser but not inconsiderable extent). It's highly unlikely a third party lessor will step into the breach for GM, and Toyota/Honda/Nissan or any of the premium marques are not about to exit leasing. The key takeaway: GM's going to lose a ton of deals without leasing. Their decline and fall continues.

Anyone remember the Monty Python sketch where lost explorers say "Hang on a minute, if we're lost, who's filming us?" And then they're shown greeting the camera crew. And then they repeat, "Hang on, who's filming them?" And reveal another camera crew. Well, you gotta give the Flying Circus credit for prescience. Pistonheads reports that "Angry motorists [in Lancashire] have twice torched the £24,000 speed camera, which is situated on the B5246 at Mere Bow, and last week it was pushed over. Now Lancashire Partnership for Road Safety is threatening to put up another camera to monitor the Gatso." The ire might have a little something to do with the fact that the Lancashire po-po had to rescind 545 speeding tickets for "improper calibration." Anyway, this would not be the UK's first camera-on-camera action. In fact, the most up-to-date UK speed cameras have a built-in security camera, and automatically notify the local constabulary when they're under attack. So the latest motto from The Land of Hope and Glory's glorious leaders must be "Tough on crime, tough on people inspired to commit crime by policing policies designed to raise revenues and punish otherwise law-abiding citizens, for their own good."  

While some of TTAC's Best and Brightest adopt a "rot in Hell" stance regarding HUMMER's imminent demise, pity the poor dealers. Speaking with Automotive News [sub], HUMMER Sacramento store owner Mike Daugherty said $4-a-gallon gasoline took away about half his biz. The other half disappeared after GM announced it might sell the brand. Yup. In June, Hummer sales fell 59.3 percent to 2,072 units. Obviously, GM CEO Rick Wagoner knew his "strategic review" proclamation– and subsequent withdrawal of all corporate support– would scupper HUMMER. But underhanded bastard clever man that he is, Wagoner also realized that dangling hopes of a HUMMER buyer would keep the dealer payoff price down. Wagoner mentioned a mystery buyer at the time of the first knife thrust. Since then, GM's paying HUMMER dealers "advanced sales bonuses" and buying them out, hoping to avoid the blizzard of lawsuits that accompanied Oldsmobile's termination. On Friday, Rick twisted the knife again, repeating the HUMMER sales rumor. "We have some interested buyers," Rick said [via Reuters]. "And I can't tell you anything beyond that right now, but we are moving as fast as we can." Believe it or don't.

Our previous blog post made the connection between China's increasing demand for imported oil, The People's Republic's subsidies for the black gold ($40b p.a.) and the policy's inflationary effect on U.S. gas prices. Common sense (and The New York Times) suggest that other "managed economies" are using the same pro-growth strategy, amplifying the inflationary effect on world oil prices. "The oil company BP, known for thorough statistical analysis of energy markets [excellent hat tip to Big Oil!], estimates that countries with subsidies accounted for 96 percent of the world’s increase in oil use last year — growth that has helped drive prices to record levels." Hey, what happened to "Let's all blame the evil speculators?" Anyway, you think the U.S. is "addicted to oil?" Malaysia spent 7.5 percent of its economic output on oil subsidies. Indonesia shelled-out $20b this year to keep prices down. And where there's no political will to let the free market do its thing, there's no way they'll stop. "You talk about subsidies, you’re not only talking about the economy," asserts Purnomo Yusgiantoro, Indonesia’s minister of energy and mineral resources. "You’re talking about politics.” I.e. his job. So they're damned if they do, damned if they don't. And for this you pay at the pump. [thanks to OldDavid for the link]

Those who claim that the current price of oil is a supply – demand deal have some new ammo. Industrialinfo.com reports that The People's Republic of China imported 90.53 million tons of crude oil in the first half of 2008, up 11 percent over the same period last year. And you know all those dollars we send over to China to build the cheap stuff we buy at Wal-Mart? A big chunk of that went to "Angora, Saudi Arabia and Iran" [sic]. "The value of imported oil rose to $64.98 billion, representing a dramatic 85.8% increase in costs." Although China exports some oil (2.37m barrels worth $1.42b), experts reckon the percentage of imported oil will continue to rise. The only possible brake on Chinese oil consumption: the lowering of government subsidies. The New York Times pegs that number at $40b per annum. So far, nothing much happening on that front. All of which means the current status is likely to remain quo. 

Good morning participants in TTAC's fantasy GM Car Czar (WTF Edition). Remember when GM announced they were going to build the Beat sub-compact for U.S. Chevy dealers– and then not (too expensive to import)? Well I hope you didn't toss out the cards for the Beat mini-cars' brethren. Automotive News reports that GM now plans to replace the current Aveo with a hecho en Mexico version of the Groove or Trax by 2011. Product-addled Chevy Veep Ed Peper refuses to narrow it down any further. "Of the triplets, we will get one of those variants, I don't want to say at this point." Peper also warns U.S. mini-car fans that the final vehicle will be "very similar to one of those vehicles but larger," in part to meet U.S. crash test standards. The supersized mini-compact will be built on the gamma platform. Oh, and the Cruze will replace the Cobalt. Still, best to save those cars. I mean, cards. 

When it comes to government-mandated corporate average fuel economy (CAFE) regs, I'm with GM Car Czar Bob Lutz. It's like forcing a clothing maker to sell smaller shirts to get people to lose weight. If you want to reduce obesity, just raise the price of food. [My add; even MB knows you can't threaten to starve people for their own good.] In any case, no matter what MB and his employer's representatives say, they have a consistent record of gaming the system. Flex-fuel credits anyone? The U.S. "light truck" CAFE exemption is/was The Mother of All Loopholes. (Who says there's no such thing as karma?) And now GM's playing the angles in Europe. The Times reports that UK PM Gordon Brown's entourage arrived at the London Auto show in some Indian sedans and SUVs and dangled £90m of UK taxpayer money for electric automobile development. Over five years. Available to someone. Depending on something. To which GM Europe Prez Carl-Peter Forster responded fuck that shit [paraphrasing]. GM's wants a national sponsor for a "super credit" scheme that would allow ultra-low carbon-dioxide vehicles (below 50g/km) to offset larger and more polluting models. "If Britain was prepared to champion this idea within the EU, GM would consider making its electric vehicles at the Ellesmere Port plant on Merseyside." Sweet.

From GM's 10k filing… "Under the residual support program, the customers’ contractual residual value is adjusted above GMAC’s standard residual values. We reimburse GMAC to the extent that sales proceeds are less than the customers’ contractual residual value, limited to GMAC’s standard residual value. As it relates to U.S. lease originations and U.S. balloon retail contract originations occurring after April 30, 2006 that GMAC retained after the consummation of the GMAC sale, we agreed to begin payment of the present value of the expected residual support owed to GMAC at the time of contract origination as opposed to after contract termination when the related used vehicle is sold. The residual support amount owed to GMAC is adjusted as the contracts terminate and, in cases where the estimate is adjusted, we may be obligated to pay each other the difference. As of December 31, 2007 and 2006, the maximum additional amount that could be paid by us under the U.S. residual support program was $1.1 billion and $276 million, respectively… We will also pay GMAC a quarterly leasing payment in connection with the agreement beginning in the first quarter of 2009 and ending in the fourth quarter of 2014. At December 31, 2007 and 2006, the maximum amount guaranteed under the U.S. risk sharing arrangement was $1.1 billion and $339 million, respectively. The maximum amount would only be paid in the unlikely event that the proceeds from all outstanding lease vehicles would be lower than GMAC’s standard residual rates, subject to the limitation. As of December 31, 2007 and 2006, we had a total reserve recorded on our consolidated balance sheet of $144 million and $50 million, respectively, based on our estimated future payments to GMAC associated with the maximum amount guaranteed under the U.S. risk sharing arrangement."

Well, finally. The Blue Oval Boyz promised to unveil a new product plan for their Mercury brand on the same day their financials were revealed. Nope. I guess FoMoCo didn't want to steal the "thunder" of the press release re: the 2010-or-bust-and-maybe-even-then Mexican-built (but Euro-style) Ford Fiesta and Focus. Anyway, enough scene setting (it was a dark and stormy car market). Here's Mercury's new theme song, as sung by Derrick Kuzak, Ford's global product chief, [via The Detroit News]: "Ford Motor Co. will reposition Mercury as an entry-level premium brand that will support Lincoln [which] will no longer get any smaller vehicles, as had been planned, while Mercury will only get smaller cars and crossovers." In practice, the Sable dies, the Mercury Mariner and Milan live (with hybrid versions) and the brand gets a new, new-Focus-based sedan as and when. MA Lincoln Mercury dealer Chris Lemley responded to the revelations from the bowels of the Faint Praise Department. "Not only is some product news better than no product news, but some Mercury strategy is better than not having one." How great is that?

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."

Ignorance is a bankable commodity. When Bear Stearns stepped-up to the federal begging bowl, the average U.S. taxpayer had no idea who the Hell they were, why they needed money, and whether or not they should get it. Still doesn't. But if/when Ford eventually asks Uncle Sam to open your purse, it may not have what you'd call a winning plot line. Ford's good will with the public has often gone up in smoke (Pinto) or rolled over and died (Explorer). There's another PR debacle looming over the horizon: Flash of Genius. The movie paints a bleak moral picture of the artist once known as the inventor of the working class hero-mobile. We'll be sure to explore whether or not it's accurate in future posts. Meanwhile, make no mistake: it doesn't matter. Except that it does. And will. [thanks to katiepuckrick for the tip]

In General Motors Death Watch 182, I reported on GM's decision to squeeze a little more blood from the stone known as U.S. sales, by raising their product prices by 3.5 percent across the board. I pointed-out that Toyota could eat some more of GM's market share simply by NOT raising their prices or, God help Motown, lowering them. I predicted that ToMoCo would raise their prices, to maintain profitability and avoid any possibility of an anti-transplant backlash. And so they have. The AP [via The International Herald Tribune] reports that Toyota will up prices by a little over one percent– except for the hot-selling Prius (up 2.2 percent or $500). The timing is curious; the news arrived on the same day that GM lowered and extended its employee pricing. In any case, it's clear that Toyota is treading carefully, refraining from delivering the killer blow that's well within their power. They're leaving that for The Big 2.8 themselves.

A clever TTAC commentator scanned internet archives and found this little gem. It's the script for aspiring actors looking to apply for GM's CPO ambush ads. As anyone who's ever watched the carefully-planned spontaneity of reality TV knows, it's no surprise that GM decided how to embarrass private sellers before they embarrassed them, and used professionals. But it's still a bit queasy-making to see the non-pro sellers' replies pre-established on paper. And there are still a few questions about Ambush-gate that I'd like answered. Were the ambushees given a heads-up before taping? Were they given the script? How many sellers did they film who refused to sign a release? How much did GM have to pay to get people to agree to this? How much did this campaign cost? [thanks to AW for the tip]

Click here for PDF of script

Today's New York Times reveals the not-so-startling news that Wall Street's Big Swinging Dicks are not so big and not so pendulous this year. "A review of the latest statements from the largest financial companies based in the city shows that they intend to hand out about $18 billion less in pay and benefits in 2008 than in 2007… It would mean about $10 billion less in taxable income and several billion dollars less to be spent on apartments, furniture, cars, clothing and services. For many investment bankers and traders, year-end bonuses traditionally account for at least three-fourths of their income. But the downshifting of the Wall Street lifestyle has already begun." The general economic downturn is starting to take its toll luxury car sales, with Lexus down 29.8 percent in June, down 14.7 percent for the year. But is it possible? Could Porsche's $127k base Panamera land with a thud? Will Ferrari actually be heading for that moment in their history when they have, gulp, inventory?