Leasing is down industry-wide by about 50% from 2007 levels, but General Motors' captive credit arm took an even bigger bite out of its vehicle leasing in September. GMAC leased only 2% of all GM products in September, and the decision to do so had everything to do with the recent events of the financial markets. While leasing was down GM-wide in September, GMAC and Chevrolet were hit the hardest. The General's two volume brands accrued only .6% and .7% of its sales through leasing, compared to 11.2% and 13.6% respectively last year. Leasing is virtually non-existent for vehicles with low residuals, and Cadillac, which typically leases over 40% of its vehicles, leased at an 8.4% clip last month. Nobody on Wall St. is purchasing securities right now, giving GMAC very little money to offer leases to its customers. A controlling interest in GMAC was purchased by Cerberus well before the private equity firm took control of Chrysler. Chrysler stopped leasing all together on August 1 in response to the huge losses it took on returned leases of SUVs and trucks. Both GM and GMAC say the break from leasing is only temporary, but with the financial markets still in flux, don't expect this trend to reverse itself any time soon.
Due to a miserable U.S. car market, Detroit automakers are losing billions from lower than expected residuals on leased vehicles. Since the residuals on Motown metal are traditionally below that of the Japanese competition, many industry insiders thought that Toyotas in this country world were immune to the trend. It appears that's not the case. Toyota announced it had to "set aside major reserves for its first quarter to cover losses from vehicle leases in the U.S."
The problem is predictably bad with trucks and SUVs, but other products aren't selling off lease as well as they have in the past. With residuals dropping, used cars are dirt cheap. That gives prospective buyers an affordable alternative to buying a new car. That's bad news for Toyota, but it may even be worse news for everyone else.
Toyota has been making money and gaining market share during these tough times, but even the automotive juggernaut is struggling in today's difficult economic conditions. Including Lexus, Toyota's Daily Sales Rate is down for seven straight months versus prior year numbers, with July missing the mark by 18.7%. This news proves that even Toyota has its share of problems, but what it really shows is that Chrysler may have been on to something when it stopped offering leases.
A quick look at July sales figures shows that Chrysler saw a massive 34% drop in its Daily Sales Rate vs. July 2007, but the bottom line could have looked worse. Chrysler's recent announcement that its financing arm would exit the leasing business by July 31 had lead to a rush of customers visiting local Chrysler, Dodge and Jeep dealerships. Some dealers sold four times as many vehicles as usual for the last couple days of the month, giving the stores some relief from an otherwise bleak July. Now dealers are worried that the increased sales volume could lead to a still more bleak August, since many customers pulled forward their purchase decision.
Some dealers are trying to find third-party banks willing to get in on the leasing game, but a tight credit market and massive losses at automaker credit arms have made leasing look very unattractive as lease price begin to rise. Chrysler is hoping a fresh round of incentives will help cushion the blow, as zero percent financing and plenty of cash on the hood is the order of the day for now. Chrysler historically leased about 20% of the vehicles it sold, so if a whole new round of juicier incentives doesn't entice customers to "Shop til you Drive", August may look even worse than July
Chrysler's departure from the leasing game certainly isn't going to help dealers move stale product off their lots, so the automaker has announced a new sales program unimaginatively named the "Shop 'Til You Drive Sales Event." What'll it take to get you into a new Chrysler, Dodge or Jeep vehicle?
Well, aside from $2,000 cash back on "select retail purchases," Chrysler is offering an August-only, 72-month, zero-percent APR financing deal on many of its slow-selling models that aims to make monthly payments approximately the same as a 36-month lease.
Additionally, pricing on Dodge, Chrysler and Jeep vehicles has been slashed, with the Ram dropping 40-percent of its MSRP, Aspen hacked by up to 25 percent, Town & Country minivans cut by 24 percent and Grand Cherokees dropping 28 percent.
Chrysler will also try to get lessees back into dealerships by offering special "loyalty incentives" that will be applied to a new retail purchase, along with waiving the $425 lease disposition fee.
With all the news swirling around about the downfall of leasing among the Detroit 3, Chrysler has decided to stick Stuart Schorr, Senior Manager, Sales, Mopar and Dealer Communications, in front of the mic to clear up a few things. The first point he makes is that Chrysler LLC dealers can still offer leases to customers from other financial institutions besides Chrysler Financial. While this is true, some of those financial institutions have also backed out of the business of leasing Chrysler vehicles, including Chase Auto Finance. We're not sure how many lease backers that leaves, but the ones remaining will likely be forced to raise lease prices, much like Ford has done with its truck and SUV leases, to protect themselves from losing tons of money when vehicles leased today are eventually turned back in. The second point made by Schorr is that all current leases are not affected and their lease terms will remain in effect. Well we would hope so! Third is that Chrysler Financial will waive the disposition fee if a current lease owner decides to buy his or her vehicle at the end of the lease term. LeaseGuide.com tells us that this fee usually amounts to between $250 and $450. Here's some friendly advice – do not buy your lease vehicle at the end of its contract. Unless you've driven a ridiculously low amount of miles (not likely), your vehicle is worth way less than what Chrysler thought it would be and the disposition fee will not make up the difference. You would effectively be letting Chrysler Financial off the hook for overestimating the car's residual value. Schorr's fourth point is that employee leases and company cars are not affected. Cool, 'cause we were pretty worried about that. At the end of the day, leasing is still a viable option for many people who find the cost agreeable, as we've no doubt learned this past week that the financial institution backing the lease is shouldering the risk.
While Chrysler has chosen to get out of the leasing business altogether after taking a bath on vehicles being returned with residual values far below expectations, Ford will reportedly be taking a different approach. Automotive News is reporting that after its finance arm recorded "extreme losses" on its lease vehicles, the automaker has decided to raise prices on its leases for the F-150, Super Duty, Ford Explorer and Sport Trac. Keep in mind that the residual value of these particular vehicles is falling so fast that Ford will be forced to price these leases so high that no consumer in his right mind would actually lease one. So while Ford is not actively removing itself from the leasing business when it comes to trucks and SUVs, its decision to sharply raise prices will have pretty much the same effect.
Fresh off the news that Chrysler financial will no longer play the leasing game comes word that Ford took a $2.1B charge in the second quarter to offset expected losses from truck and SUV leases. High gas prices have put a huge dent in the truck and SUV market, so when customers turn in their vehicles, their residual value is lower than originally thought and Ford Credit ends up paying the difference. The trucks are fetching less at auction and on dealership used car lots, leaving thousands of dollars that need to be paid by Ford Credit. Ford is also faced with spending more on incentives to subsidize the monthly payments for its truck fleet. Ford's credit arm lost $1.4B in the second quarter, as repossessions and loan defaults also rose due to poor economic conditions. Despite Ford Credit's struggles, the Blue Oval has not said it will discontinue offering leases, which make up 20% of Ford's overall sales, though we've heard some very unsubstantiated rumors that an announcement similar to Chrysler's may come tomorrow.
Today is Job 1 for the world's first series production fuel cell car as Honda executives and the first customers for its FCX Clarity looked on. Honda CEO Takeo Fukui and American Honda EVP John Mendel were also there to watch as the first production FCX Clarity was completed and driven off the line. Joining the Honda bosses were Ron Yerxa, Jon Spallino and Lauren Harris. Those three along with Jamie Lee Curtis, her husband Spinal Tap lead guitarist Christopher Guest and business owner Jim Salomon will be the first customers to take possession of their Claritys when they arrive in Southern California next month.
Honda put in a dedicated assembly line at its Tochigi New Model Center to produce the 200 Clarity units that are planned for delivery over the next couple of years. Currently Honda is only leasing the cars (for three years at $600/month) in areas where there is a already a dedicated supply of hydrogen and enough places to buy it. That means the Los Angeles area first, along with Japan. Three Los Angeles area Honda dealers have been named to provide service and support for the hydrogen fueled four passenger Accord sized sedan in case a cup holder or the car's very high-tech hydrogen fuel cell needs fixing. All we know is that these new FCX Clarity owners better have some big pockets for those oversized keys.
Due to a slumping greenback, the Canadian Loonie and the U.S. dollar are worth roughly the same amount, but the price of most new cars in Canada haven't made the adjustment. Two leasing companies are suing the Canadian government, BMW Canada Inc., Mercedes-Benz Canada Inc. and Mercedes-Benz USA LLC for a cool billion dollars, but not because of the uncompetitive pricing in the United Province.
The leasing companies have filed suit because strict import rules are preventing the companies from buying cars in the U.S. and selling them in Canada. The many fees, procedures and restrictions allegedly resulted in a 20-30% increase in the sale of more expensive Canuk cars. One example is a $350 admissibility charge to import a Bimmer, and a far more ridiculous $500 fee will be levied for bringing over a BMW that has received a recall repair in the States. The leasing companies allege the all those fees and fines enable BMW and Mercedes to sell vehicles that cost between 20% and 35% more than similar US models.
Rather than these two leasing companies, it seems like customers in Canada are the ones who are losing out the most with high vehicle prices. At least the Canadians still have plenty of other cars and trucks that they can import from the U.S.
