Post by psychecc on Jul 28, 2008 16:52:05 GMT -6
According to this Bloomberg article, Chrysler can't afford to lease cars anymore since the resale values are dropping so fast. About 20% of their business was in leasing, so this is likely to further hurt sales. They are offering a 6-year loan, however. Sort of reminds me of the first 50-year home mortgage.
Commentators are suggesting this will force people to buy the amount of car they can really afford as opposed to leasing more than they could afford in the past. I guess we have a car bubble to go with our housing bubble. No surprise, since so many home equity loans went into buying the shiny new SUVs.
Chrysler Says Lending Unit to End Auto Leases Aug. 1 (Update3)
By Mike Ramsey
July 25 (Bloomberg) -- Chrysler LLC, hurt by plunging prices for used sport-utility vehicles, said its finance unit will stop offering leases to customers on Aug. 1.
Rising borrowing costs drove up consumers' lease payments, helping spur the shift, President Jim Press told reporters today on a conference call. Dealers can still tap other lenders for leases once Chrysler Financial exits that business, he said.
Other automakers may have to follow. Ford Motor Co. took a $2.1 billion second-quarter charge yesterday for leased trucks owned by Ford Motor Credit as $4-a-gallon gasoline eroded the so-called residual values projected for the vehicles when they're returned.
``After a $2 billion loss on residuals, I would not be surprised to see a pullback on leasing,'' Lehman Brothers analyst Brian Johnson in Chicago said in an interview. Ford Credit and GMAC LLC, the General Motors Corp. lender, might retrench on leasing, not quit outright, he said.
Automakers have long used their finance units to help boost sales through lower payments. The shift on leases at Chrysler, the third-largest U.S. automaker, comes as the domestic market slides toward what may be its worst year since 1993.
Chrysler's 22 percent U.S. sales decline through June 30 was the most of any major automaker and more than twice the 10 percent industrywide total. Leases account for about 20 percent of the vehicles driven off dealer lots, according to Auburn Hills, Michigan-based Chrysler.
`Profoundly Hurts'
``It profoundly hurts me,'' said Alan Helfman, owner of Helfman River Oaks Chrysler Jeep in Houston. ``I was doing 20 to 30 leases a month.''
Chrysler and Chrysler Financial are owned by New York-based private-equity firm Cerberus Capital Management LP, and operate independently within holding company Chrysler Holdings LLC. Cerberus also owns a majority stake in GMAC.
Chrysler will begin offering 72-month, no-interest loans on its Jeep Cherokee and Commander, Chrysler Aspen and Dodge Durango SUVs. Steve Landry, executive vice president of sales for North America, said the Cherokee is Chrysler's most commonly leased vehicle.
Borrowing costs to finance leases are now so high that subsidizing lease offerings no longer makes sense, Thomas Gilman, chairman of Chrysler Financial, said on the conference call. For consumers, monthly lease payments are now similar to those under a traditionally financed purchase, Press said.
`Pressures on Leasing'
``The pressures on leasing are going to follow everybody,'' Press said. ``There are a lot of financial requirements for leasing to not make it as attractive as it had been.''
GMAC spokeswoman Gina Proia didn't immediately return a voice-mail message seeking comment. ``Our business plan always includes a certain amount of leasing to support sales,'' Ford Motor Credit spokeswoman Brenda Hines said in an interview.
Chrysler's move ``shows how severe the deterioration in residual value is,'' said Pete Hastings, a fixed-income analyst at Morgan Keegan & Co. in Memphis, Tennessee. ``To pull back completely on leases means they think prices are going to go down probably through next year.''
U.S. used-vehicle prices fell in June for an eighth straight month, dragged lower by a 28 percent decline in large SUVs, according to Atlanta-based Manheim Consulting.
``Companies are saying, `It's not worth it in this environment to remain active,''' said Scott Valentin, a Friedman Billings Ramsey Group Inc. analyst who follows consumer credit companies.
www.bloomberg.com/apps/news?pid=20601087&sid=aVo5HHiSxehg&refer=worldwide
Commentators are suggesting this will force people to buy the amount of car they can really afford as opposed to leasing more than they could afford in the past. I guess we have a car bubble to go with our housing bubble. No surprise, since so many home equity loans went into buying the shiny new SUVs.
Chrysler Says Lending Unit to End Auto Leases Aug. 1 (Update3)
By Mike Ramsey
July 25 (Bloomberg) -- Chrysler LLC, hurt by plunging prices for used sport-utility vehicles, said its finance unit will stop offering leases to customers on Aug. 1.
Rising borrowing costs drove up consumers' lease payments, helping spur the shift, President Jim Press told reporters today on a conference call. Dealers can still tap other lenders for leases once Chrysler Financial exits that business, he said.
Other automakers may have to follow. Ford Motor Co. took a $2.1 billion second-quarter charge yesterday for leased trucks owned by Ford Motor Credit as $4-a-gallon gasoline eroded the so-called residual values projected for the vehicles when they're returned.
``After a $2 billion loss on residuals, I would not be surprised to see a pullback on leasing,'' Lehman Brothers analyst Brian Johnson in Chicago said in an interview. Ford Credit and GMAC LLC, the General Motors Corp. lender, might retrench on leasing, not quit outright, he said.
Automakers have long used their finance units to help boost sales through lower payments. The shift on leases at Chrysler, the third-largest U.S. automaker, comes as the domestic market slides toward what may be its worst year since 1993.
Chrysler's 22 percent U.S. sales decline through June 30 was the most of any major automaker and more than twice the 10 percent industrywide total. Leases account for about 20 percent of the vehicles driven off dealer lots, according to Auburn Hills, Michigan-based Chrysler.
`Profoundly Hurts'
``It profoundly hurts me,'' said Alan Helfman, owner of Helfman River Oaks Chrysler Jeep in Houston. ``I was doing 20 to 30 leases a month.''
Chrysler and Chrysler Financial are owned by New York-based private-equity firm Cerberus Capital Management LP, and operate independently within holding company Chrysler Holdings LLC. Cerberus also owns a majority stake in GMAC.
Chrysler will begin offering 72-month, no-interest loans on its Jeep Cherokee and Commander, Chrysler Aspen and Dodge Durango SUVs. Steve Landry, executive vice president of sales for North America, said the Cherokee is Chrysler's most commonly leased vehicle.
Borrowing costs to finance leases are now so high that subsidizing lease offerings no longer makes sense, Thomas Gilman, chairman of Chrysler Financial, said on the conference call. For consumers, monthly lease payments are now similar to those under a traditionally financed purchase, Press said.
`Pressures on Leasing'
``The pressures on leasing are going to follow everybody,'' Press said. ``There are a lot of financial requirements for leasing to not make it as attractive as it had been.''
GMAC spokeswoman Gina Proia didn't immediately return a voice-mail message seeking comment. ``Our business plan always includes a certain amount of leasing to support sales,'' Ford Motor Credit spokeswoman Brenda Hines said in an interview.
Chrysler's move ``shows how severe the deterioration in residual value is,'' said Pete Hastings, a fixed-income analyst at Morgan Keegan & Co. in Memphis, Tennessee. ``To pull back completely on leases means they think prices are going to go down probably through next year.''
U.S. used-vehicle prices fell in June for an eighth straight month, dragged lower by a 28 percent decline in large SUVs, according to Atlanta-based Manheim Consulting.
``Companies are saying, `It's not worth it in this environment to remain active,''' said Scott Valentin, a Friedman Billings Ramsey Group Inc. analyst who follows consumer credit companies.
www.bloomberg.com/apps/news?pid=20601087&sid=aVo5HHiSxehg&refer=worldwide