Didn't see this one coming but a lot of us here could guess who the players are that are not doing well on leases. Wonder if this is a trend for the industry or just rearranging the deck chairs on the Titanic known as Chrysler?

Chrysler to stop leasing vehicles

DETROIT (Reuters) — Chrysler's financial arm said Friday it would stop offering vehicle leases to U.S. consumers, a sharp break in strategy in response to plunging resale prices for gas-guzzling trucks and tighter credit.
"We are shifting our strategy to focus on retail products," said spokesman Bill Porter. "Effective August 1 we will no longer offer lease products in the United States."

Porter said the move by the unit of the No. 3 U.S. automaker, which is controlled by private equity firm Cerberus Capital Management, was prompted by the tough market conditions.

U.S. auto sales have dropped to their lowest level in 15 years, and the sudden premium on fuel-efficiency in the face of record gasoline prices has forced consumers to abandon SUVs and other light trucks.

The result has been a sharp decline in the resale prices for light trucks that has forced major automakers and related lenders to take large losses to write down the value of leases on those once-popular vehicles.

"You have got the dropping of the used car vehicle prices. You have got people that are struggling with the credit crunch," Porter said. "It is very difficult right now to offer competitive lease products. So we are switching our strategy."

Chrysler's larger rival Ford Motor this week took a $2.1-billion charge for its finance company when it reported second-quarter results, in large part because of the hit it took on the declining value of SUV and truck leases.

Nissan Motor Chief Executive Carlos Ghosn said this week that the reserves needed to cover losses on vehicle leases had been the one major surprise of the downturn for the Japanese automaker.

 

Wow, that is a DRASTIC move. We have talked about some surprisingly low prices for used cars and this is part of the problem. Getting anyone in a lease and then you have tons of used cars sitting around and many today are no longer "hot" items. Its a very short term strategy, not much different to the morons in the mortgage industry putting anyone in a home.

 

The one thing that surprised me was the quote from Ghosn. Not that I treat him as an automotive superstar but it sort of indicated this isn't just ChryCo. But I have to agree, it is a drastic move and they have to realize that all it will do is lose them customers. I wouldn't figure they had that many they could afford to lose to begin with.

And let's be honest here, if all of us made up a list that if the recap on leased cars was a serious issue, then bimmer would have to top the list for who would have the potential biggest problem. The leases that are so attractive from the consumers standpoint appear to be a nightmare on the corporate side. Of all the actions that you might have guessed would be on the agenda for the car makers to start taking, getting out of the lease end was just not anything I had any notion that they would do. Amazing times.

 

Well, I guess this is where Chrysler gets back some of the money they have spending (and losing) on those guaranteed $2.99-a-gallon for 87 octane promotion deals. If their new vehicles are depreciating faster than the lease payments can cover them (and that seems to be the case), then they obviously have been losing money on leases, too, not just the gas deals.........and that has to stop.

Chrysler is not alone in losing money on lease deals. Nissan, in the last several years, also lost a bundle on its lease deals. And, about the only thing that doesn't keep BMW from losing money also on its good lease deals is the fact that no matter what happens, BMWs seem to hold their value.

 

First off, I'm shocked. I don't see how this can help their sales much. But maybe I don't understand drastic measures like this and charging for the first bag on a flight (can't wait to see what that does to the boarding process).

Anyway, as Ron pointed out, BMW has some great lease numbers (residuals) (ask me about them next Wed and I might just tell you how good). These are a two edge sword - on one side, they do help keep prices up - on the other hand, the market's hand is strong and if you price the M5 at 58% residual after three years, well then, you better hope it is somewhat close to that three years down the road....

 

I have to figure I'm not smart enough but I can't figure this move out either. I know that ChryCo's handlers are Cerberus but I just can't figure this out. Revamping the policy, etc., but just to stop it.. Well, like I said, I didn't see this one coming. With only a big of sarcasm, maybe ChryCo products hold value so poorly that offering the leases is just a bad idea.

For years, bimmer leases have been the best in the segment IMO although I may not have watched it that closely. I could easily rationalize it ten or twenty years ago with BMW residuals being what they are. But if ChryCo thought this was a big enough problem to withdraw from the market, and Ghosn seems to be quoted as saying yes, it is a real problem, just makes you wonder what the impact going forward is. Maybe I need to go find me an M5 somewhere that has a good lease on it....

 

Leases help sell cars (although I suppose that you could replace them with balloon payment loans).

Obviously Chrysler residuals are crappy and that either makes their lease prices crappy OR makes them use inflated residuals in order to have competitive numbers. So fix the problem - get your residuals in line. Consider a certified program to help. Do something, but don't remove the tool that helps people obtain your cars.

Let's also remember, that Chrysler Financial is stopping leasing - other companies will still offer them.

And Ron, hate to tell ya, but the loaded black M5 in St. Louis (the one with the new hood) has apparently been sold. So you can scratch that one off your list (I did note that there were about 450 BMW dealers in California however....)

 

I'm surprised you didn't do the math on their $2.99 / gallon deals... they really aren't that great of a deal, and they aren't losing that much at all, just kinda a big rebate paid back over a few years is really all it is... First, they pay the difference over $2.99 / gallon, up to 12,000 miles per year... If the average new car is getting 20 mpg, that's 600 gallons of gas per year... current price of gas is $3.94 here in San Antonio, but, lets assume it gets as high as $4.50 / gallon (for 87 octane) - that's $1.50 / gallon times 600 gallons, or, $900 per year... IIRC, it was a three year plan, so, it's like a $2700 rebate, paid over three years... not a bad deal, but it's not killing them either...

 

Lets just hope this leads to better financing rates! I love the 0% for 72 month deals that are offered!

 

The main reason Chrysler is getting out of leases is they can't afford to own the vehicles while they rent them to the customers. Unlike a sale where they get paid for the car, a lease means Chrysler still owns the vehicle until the lease is over and they can sell them on the market. That is a huge operating expense for two/three years. That would be akin to the home builder actually owning the house while the new tenants live in it for two or three years. It's untenable. There may be more surprises along the leasing line in other weak manufacturers.

 

This is true. In addition, I read that they have also invested in oil as a hedge against rising gas prices. So even if the price of oil triples, they're somewhat covered

 

I think another part is they need to try to build back customer loyalty, which means having people PURCHASE a car and not LEASE it, which is borrowing. Then as you all stated, you have a bunch of cars you cannot sell, which creates a giant problem(s).

Who leases a Chrysler anyway? I honestly wouldn't know.

They are in dire straights with no small cars since the silly forecasters figured a new generation NEON was not what people would want and we got the Caliber and its twin(s).

They have NO SMALL CARS!!

 

I agree with much of your math (actually I DID do some math myself). Gas, of course, is cheaper in your state of TX than in many other places (here good 87 octane averages about $4.15). But here's where you and I may disagree.....$2700, even spread out over 3 years, is a good chunk to lose on every vehicle. And, added to that, was the loss that Dodge/Chrysler was taking on leased vehicles that were depreciating quickly, like Durangos, Jeep Commanders, and other large SUV's (people don't normally lease gas-guzzling pickup trucks). It clearly was an unacceptable situation, and one of them had to go. Chrysler decided, apparantly, that axing the lease program, in the long run, was the better of the two alternatives, although the $2.99-gas deal was not meant to be permanent either. For one thing, no one knows what gas prices will be in a year or two anyway.

Now.....this part may be sightly off-topic, but I hope Dodge and Chrysler take some of the cash they save in the future and put it into decent interior materials and hardware........some of their vehicles have interiors that, IMO, quality-wise, are simply deplorable. The Dodge Caliber, Jeep Compass, and Dodge Nitro are probably the worst. At the Washington, DC Auto show in January, even the Chrysler reps there admitted that many of their products were too cheaply made, but they blamed much of it on the way Mercedes ran Chrysler before letting go of it.

 

via motorauthority

 

M5? What's that? Some kind of car?