Topic: No more leases from Chrysler

[PJungnitsch]

Things just keep getting better for these guys. I thought the big success of Chrysler Canada was based on cheap financing?

DETROIT -- Chrysler LLC has started telling dealers it will no longer offer auto leases through its lending arm Chrysler Financial, people familiar with the matter said Friday.

Chrysler is expected to brief dealers formally later in the day in a conference call, these people said.

The move comes as auto makers and their financing units have been piling increasing losses stemming from leases, mainly as a result of falling resale values of trucks, sports-utility vehicles and other less fuel-efficient models that many consumers now shun.

On Thursday, Ford Motor Co. took a write-down of $2.1 billion related to unprofitable lease deals made by Ford Motor Credit.

Chrysler's announcement also comes as Chrysler Financial has been trying to persuade more than 20 banks to renew a $30 billion credit facility -- backed by car loans, leases and loans to dealers -- that was issued by the auto-finance company last year when it was carved out of the former DaimlerChrysler AG. The debt represents a sizable chunk of Chrysler Financial's $70 billion portfolio in working capital. The higher financing costs could further complicate the attempt by private-equity firm Cerberus Capital Management LP to turn around the auto maker.

Chrysler Financial is likely to see its borrowing costs rise in early August when it rolls over about $30 billion of short-term debt backed by the loans and leases it makes. That, in turn, will make it harder for the company to offer low-interest loans to buyers and for dealers to hold inventory.

It is unclear how much more Chrysler Financial will have to pay in interest costs, but people familiar with the situation said it would be well above the London interbank offered rate, or Libor, a common benchmark for such loans. Libor is now about 2.8%, and the spread is expected to be well more than one percentage point above that.

Alan Helfman, a dealer in Houston who was informed of the change by Chrysler, said the change will make it more difficult to sell vehicles because a number of rebates and sales incentives kick in when customers lease through Chrysler Financial. "It will hurt," he said.

http://online.wsj.com/article/SB121701005398185331.html?

[Schmengie]

From the article:

"Alan Helfman, a dealer in Houston who was informed of the change by Chrysler, said the change will make it more difficult to sell vehicles because a number of rebates and sales incentives kick in when customers lease through Chrysler Financial. "It will hurt," he said."

If Chrysler had some product planners with half a clue they might have avoided this. Feel the pain.

[tpl]

I suppose that 3rd party leasing companies will fill the gap.  An analysts interviewed on BNN said that they, Chrysler, would be replacing leasing with 60,72 and 84 month 0 interest loans. She opined that this would be bad for sales, especially for truck sales.

[initial_D]

Isn't that like the banks are saying ... your credit is no Friggin good anymore, we will not lend you a penny, and since you are not as trustworthy financially as before, we will have to jackup the cost of borrowing from you.

[initial_D]

I suppose that 3rd party leasing companies will fill the gap.  An analysts interviewed on BNN said that they, Chrysler, would be replacing leasing with 60,72 and 84 month 0 interest loans. She opined that this would be bad for sales, especially for truck sales.

Maybe with $1 residual values, like PCs.

[Schmengie]

I suppose that 3rd party leasing companies will fill the gap.  An analysts interviewed on BNN said that they, Chrysler, would be replacing leasing with 60,72 and 84 month 0 interest loans. She opined that this would be bad for sales, especially for truck sales.

Maybe with $1 residual values, like PCs.

[articsteve]

Cerberus Capital is Chrysler and they are in horrible state.  They bought 51%  of GMAC and we all know how that's doing.  They are heavy into real estate and construction.  Recently backed out of a purchase of United Rentals and that cost them 100 million.  They seem to have rather bad judgement.  Chairman is John W. Snow, President George W. Bush's second United States Secretary of the Treasury.   

[tpl]

In todays Financial Post  it seems that GMAC is getting out of leasing as well effective Aug 1.
I presume that GMAC, although owned mostly by Cerebus is the company that one would use when leasing a GM vehicle ? 

[bobblehead]

 This is probably why most leasing arms of companies have gone to 3rd party lease end inspectors. They are trying to recoup the money at lease end to cover some of the losses.
 Analysts expect Chrysler to fold within the next year or so and suggest they may have to sell off Jeep which is profitable.
 The problem with Autovin and 3rd party inspectors is that they are ticking off buyers who go else where to replace the lease end vehicle we return.
 Ford and most US car manufacturers insisted on making fuel guzzlers and now they are suffering. Ford built 15,000 of those Flex bricks on wheels and have only sold 500. Now they are stopping production putting 350 guys out of work.
 Ford has produced economy sport cars in Europe for years and they finally figured out that they have to bring them over here. What geniouses. If you look on the car lots it is wall to wall trucks. Unless you actually need a truck why would anyone buy one?

[Schmengie]

This is probably why most leasing arms of companies have gone to 3rd party lease end inspectors. They are trying to recoup the money at lease end to cover some of the losses.
 Analysts expect Chrysler to fold within the next year or so and suggest they may have to sell off Jeep which is profitable.
 The problem with Autovin and 3rd party inspectors is that they are ticking off buyers who go else where to replace the lease end vehicle we return.
 Ford and most US car manufacturers insisted on making fuel guzzlers and now they are suffering. Ford built 15,000 of those Flex bricks on wheels and have only sold 500. Now they are stopping production putting 350 guys out of work.
 Ford has produced economy sport cars in Europe for years and they finally figured out that they have to bring them over here. What geniouses. If you look on the car lots it is wall to wall trucks. Unless you actually need a truck why would anyone buy one?

As the Fonz would say, exactamundo. Why WOULD anyone buy one, unless they're a few hot dogs shy of a picnic. 

How much of Chrysler's business, if they have any left at this point, is based on leases? It seems to me Chrysler has a higher proportion of leases as opposed to sales, although I could be wrong. If true, it looks like a fatal implosion is imminent.

[articsteve]

I listened to John Snow on Charlie Rose (PBS) for an hour about the liquidity crisis and essentially Cerberus and other funds like GMAC have run out of credit.  He said that the only way to turn this crisis around was for the FED to underwrite a worldwide asset backed paper auction to get rid of the bad paper.

However, the Fed has gone the traditional route and are seizing failed banks instead, who are failing because they hold to much asset backed paper.   Fed seized 2 more today.  Estimates are 200 US banks will fail this year.

Because I'm a glass half emptyl guy, me thinks the next two years are going to be very tough for jobs everywhere.

[mmret]

He said that the only way to turn this crisis around was for the FED to underwrite a worldwide asset backed paper auction

I wonder if the US govt would still be AAA.

[bobblehead]

 I have always leased for business reasons. Most people I know lease .I just sold my house and am not buying another one until the market bottoms out. It is already in slow down mode. Cash is king and when I see a great deal maybe 2-3 years from now I will buy something.
 The US auto makers are guilty of total stupidity. Honda has had sales increases. We have know for years this was coming and the US auto guys just kept pushing ahead with guzzlers. That Ford Flex is an example of super dumb. I couldn't believe when they said they were pinning their hopes on that brick on wheels. I think you could get one very cheap this winter and maybe the gas to drive it.
 I have a friend who owns 3 GM dealerships and a Sturn dealership. He is shking his head in disbelief. H ehas some high end SUVs and can't give them away. Another dealer told me he dreads the lease ends on hybrids. He said he dreads getting back vehicles with a $6000 battery and the unknow cost as they reach the end of their lives. He feels its a big unknown for them. The mpgs are all over stated and he doesn't see hybrids as the answer.
 The next few years should be interesting. I am bunkered down and waiting to see if the storm turns into a hurricane.

[PJungnitsch]

If true, it looks like a fatal implosion is imminent.

Might be, at least in Canada (we are much bigger leasers then Americans, AFAIK).

It doesn't look like Honda etc are going to stop leasing. For the 'payment buyers' out there surely it's going to be much cheaper to lease a Civic at 1.9% vs buying a Caliber/Cobalt, even at 0% for 60.

If generic Superstore sneakers are suddenly double the price of Nike, how many people are still going to buy them?

The other thing is that leasing made at least the payments on expensive pickups/SUV's affordable. How many of those overstocked Ram's are Chrysler going to sell now?

[Schmengie]

I have a friend who owns 3 GM dealerships and a Sturn dealership. He is shking his head in disbelief. H ehas some high end SUVs and can't give them away. Another dealer told me he dreads the lease ends on hybrids. He said he dreads getting back vehicles with a $6000 battery and the unknow cost as they reach the end of their lives.

I'm shaking my own head at this statement. I'll bet your friend was happier than a pig in shi!t to sell 'high end SUVs' and pocket the profits while he could. Did he think that was going to last forever???

If what you're saying is true - that dealers are leasing hybrids WITHOUT knowing what the lease-end costs are going to be, well, maybe they shouldn't be in that business in the first place. No wonder GMAC is in such deep doo-doo. Unbelievable. 

[Sir Osis of Liver]

How is this a Big 3 issue and not an issue for everyone else? Toyota, Honda, Nissan and Mazda were all pushing into larger SUVs and pickups. Sequoia, Tundra, Armada etc were up-sized from smaller platforms to match the size (and $10k profit per unit) of the offerings of Ford, GM and Chrysler.

Toyota had built a new truck plant in Texas just to produce the new trucks. If ever-so-clever Toyota weren't smart enough to see the down turn and fuel spike , why crap on the Big three for not predicting it?

[Schmengie]

How is this a Big 3 issue and not an issue for everyone else? Toyota, Honda, Nissan and Mazda were all pushing into larger SUVs and pickups. Sequoia, Tundra, Armada etc were up-sized from smaller platforms to match the size (and $10k profit per unit) of the offerings of Ford, GM and Chrysler.

Toyota had built a new truck plant in Texas just to produce the new trucks. If ever-so-clever Toyota weren't smart enough to see the down turn and fuel spike , why crap on the Big three for not predicting it?

The short answer is that they had other (good) products to fall back on when the crash happened. I don't feel one damned bit sorry for ANY car company that has huge trucks and SUVs clogging it's lots, but some of them were at least smart enough not to put all of their eggs in the SUV basket.

[Sir Osis of Liver]

Focus (first gen), Fusion, Taurus/Taurus X,  Mustang are all recommended (only the Explorer, its Mercury twin and the Mark LT are below average in reliability) by Consumer Reports and competitive, though getting on in their life cycles. Of course they will also be replaced over the next couple of years

GM has the Astra, Vibe, the Malibu/Aura, CTS, STS etc which are all competitive cars.

Chrysler is the only one that really needs to get with the program.

[Trainman]

I have a friend who owns 3 GM dealerships and a Sturn dealership. He is shking his head in disbelief. H ehas some high end SUVs and can't give them away. Another dealer told me he dreads the lease ends on hybrids. He said he dreads getting back vehicles with a $6000 battery and the unknow cost as they reach the end of their lives.

I'm shaking my own head at this statement. I'll bet your friend was happier than a pig in shi!t to sell 'high end SUVs' and pocket the profits while he could. Did he think that was going to last forever???

If what you're saying is true - that dealers are leasing hybrids WITHOUT knowing what the lease-end costs are going to be, well, maybe they shouldn't be in that business in the first place. No wonder GMAC is in such deep doo-doo. Unbelievable. 

According to the CD Honda Insight used car review ( http://www.canadiandriver.com/articles/cc/2001-2006-honda-insight.php ), the batteries may not be that big a deal.  Less than $1,000 for a set that is warrantied for 8 years.  Unless of course the manufactures decide to gouge the public on this item and hike prices real high.

[Schmengie]

Focus (first gen), Fusion, Taurus/Taurus X,  Mustang are all recommended (only the Explorer, its Mercury twin and the Mark LT are below average in reliability) by Consumer Reports and competitive, though getting on in their life cycles. Of course they will also be replaced over the next couple of years

GM has the Astra, Vibe, the Malibu/Aura, CTS, STS etc which are all competitive cars.

Chrysler is the only one that really needs to get with the program.

The current Focus is a generation behind Foci sold in the rest of the world and in a global sense not competitive at all. The Fusion is a re-skinned Mazda6, so not really a Ford IMO, but I will admit that it's probably the best of the crop. The Taurus/Taurus X are large, heavy vehicles and aren't very popular here in the land of expensive gasoline. People that buy Mustangs would probably buy them regardless.

The Astra is a very nice car, but it's European and imported in limited numbers. The Vibe is a re-skinned Toyota Matrix (see comment above re: Ford Fusion). The Malibu/Aura are by far GM's best domestic sedans and the only really competitive mainstream ones it has. The Caddies are luxury niche vehicles that don't have a huge effect on GM's bottom line.

 Chrysler doesn't have a single vehicle that is seriously competitive or that I find remotely attractive. At this point it's probably too late for them to get with the program, so funeral arrangements might be in order.