johnnymk
07-26-2008, 03:36 AM
http://www.nytimes.com/2008/07/26/business/26auto.html?_r=1&th&emc=th&oref=slogin
DETROIT — Chrysler is getting out of the auto leasing business.
The company, now privately held, told its dealers on Friday that its financing arm, Chrysler Financial, would stop offering leases as of Aug. 1, a move that comes as plummeting resale values of gas-thirsty trucks and sport utility vehicles turn lease deals on those vehicles into big money losers for the Detroit automakers.
On Thursday, the Ford Motor Company took a $2.1 billion write-down in the second quarter, part of an $8.7 billion loss for Ford over all, related to unprofitable leases held by its finance arm, the Ford Motor Credit Company.
James E. Press, a co-president of Chrysler, said the carmaker would divert money it had been spending to subsidize leases toward offers that make traditional financing more affordable. He said Chrysler would offer discounts so that many customers who financed a vehicle would end up with about the same monthly payment that they would have had in a lease.
In many instances, Mr. Press said, low interest rates already have made financing more appealing than leasing, and leasing creates more financial risk for the automaker.
“There was a time when leasing was really very attractive,” he said in a conference call with reporters and analysts. “We really reached a point today, in this environment, where the economic advantages of leasing have really disappeared.”
Chrysler dealers will still be able to offer leases through independent banks.
Nationally, about four out of five customers buy rather than lease, according to data from the Power Information Network, a division of J. D. Power & Associates. But leasing is extremely popular in certain regions of the country, including the Detroit area.
At Shuman Motor Sales, a Chrysler and Jeep dealership in Walled Lake, Mich., the general sales manager, Chris Brough, said leases accounted for 85 percent of the dealership’s business. Mr. Brough said ending leases would mean lower volume at first but that the change would make his dealerships and others healthier in the long run.
“I’m looking forward to it,” he said. “We made more money when we sold cars as opposed to leasing them — when people saw value in the car rather than just the monthly payment.”
Lease payments are calculated according to how much of its value a vehicle is expected to lose during the length of the lease, and often have little correlation to the car’s actual price. Most of the larger vehicles under lease are now worth far less than they were expected to be worth, meaning lenders will lose money when they sell those vehicles after the lease ends.
In the last year alone, resale values dropped 12 percent for large pickup trucks and 11 percent for large S.U.V.’s, according to the Power Information Network.
Because leasing can make expensive vehicles cheaper to drive than lower-priced ones, it had begun playing the same type of role in the vehicle market that interest-only and adjustable-rate loans had in weakening the housing market, Mr. Press said.
“Leasing was being used in some cases to get people into product who probably economically shouldn’t have been in leases,” he said. “That kind of exposure is a little bit of a bubble, and we’ve got to clean that up.”
Chrysler’s owner, the private equity firm Cerberus Capital Management, also owns 51 percent of GMAC Financial Services, the financing arm at General Motors. A GMAC spokeswoman, Gina Proia, declined to say whether that company might also move out of the leasing business.
Analysts expect GMAC to take significant write-downs on its lease portfolio either when it reports second-quarter results or in a later period.
Separately Friday, G.M. said it would make employee discounts on its vehicles more accessible to people outside the company for the rest of July in hopes of stimulating sales in an otherwise slow month. G.M. told employees that they could each pass on their discount to one other person.
“It’s a way to get consumers who are even thinking about buying a car to at least come into the showroom,” G.M.’s chief executive, Rick Wagoner, told reporters after an event to dedicate a new powertrain development facility near Detroit.
Mr. Wagoner said July sales had been “not too different from last month,” when G.M.’s sales were down 17.7 percent and overall industry sales fell 18.3 percent.
DETROIT — Chrysler is getting out of the auto leasing business.
The company, now privately held, told its dealers on Friday that its financing arm, Chrysler Financial, would stop offering leases as of Aug. 1, a move that comes as plummeting resale values of gas-thirsty trucks and sport utility vehicles turn lease deals on those vehicles into big money losers for the Detroit automakers.
On Thursday, the Ford Motor Company took a $2.1 billion write-down in the second quarter, part of an $8.7 billion loss for Ford over all, related to unprofitable leases held by its finance arm, the Ford Motor Credit Company.
James E. Press, a co-president of Chrysler, said the carmaker would divert money it had been spending to subsidize leases toward offers that make traditional financing more affordable. He said Chrysler would offer discounts so that many customers who financed a vehicle would end up with about the same monthly payment that they would have had in a lease.
In many instances, Mr. Press said, low interest rates already have made financing more appealing than leasing, and leasing creates more financial risk for the automaker.
“There was a time when leasing was really very attractive,” he said in a conference call with reporters and analysts. “We really reached a point today, in this environment, where the economic advantages of leasing have really disappeared.”
Chrysler dealers will still be able to offer leases through independent banks.
Nationally, about four out of five customers buy rather than lease, according to data from the Power Information Network, a division of J. D. Power & Associates. But leasing is extremely popular in certain regions of the country, including the Detroit area.
At Shuman Motor Sales, a Chrysler and Jeep dealership in Walled Lake, Mich., the general sales manager, Chris Brough, said leases accounted for 85 percent of the dealership’s business. Mr. Brough said ending leases would mean lower volume at first but that the change would make his dealerships and others healthier in the long run.
“I’m looking forward to it,” he said. “We made more money when we sold cars as opposed to leasing them — when people saw value in the car rather than just the monthly payment.”
Lease payments are calculated according to how much of its value a vehicle is expected to lose during the length of the lease, and often have little correlation to the car’s actual price. Most of the larger vehicles under lease are now worth far less than they were expected to be worth, meaning lenders will lose money when they sell those vehicles after the lease ends.
In the last year alone, resale values dropped 12 percent for large pickup trucks and 11 percent for large S.U.V.’s, according to the Power Information Network.
Because leasing can make expensive vehicles cheaper to drive than lower-priced ones, it had begun playing the same type of role in the vehicle market that interest-only and adjustable-rate loans had in weakening the housing market, Mr. Press said.
“Leasing was being used in some cases to get people into product who probably economically shouldn’t have been in leases,” he said. “That kind of exposure is a little bit of a bubble, and we’ve got to clean that up.”
Chrysler’s owner, the private equity firm Cerberus Capital Management, also owns 51 percent of GMAC Financial Services, the financing arm at General Motors. A GMAC spokeswoman, Gina Proia, declined to say whether that company might also move out of the leasing business.
Analysts expect GMAC to take significant write-downs on its lease portfolio either when it reports second-quarter results or in a later period.
Separately Friday, G.M. said it would make employee discounts on its vehicles more accessible to people outside the company for the rest of July in hopes of stimulating sales in an otherwise slow month. G.M. told employees that they could each pass on their discount to one other person.
“It’s a way to get consumers who are even thinking about buying a car to at least come into the showroom,” G.M.’s chief executive, Rick Wagoner, told reporters after an event to dedicate a new powertrain development facility near Detroit.
Mr. Wagoner said July sales had been “not too different from last month,” when G.M.’s sales were down 17.7 percent and overall industry sales fell 18.3 percent.