To loan money to its lease customers, GMAC borrows the bucks from large-scale institutional investors. The money is backed by assets: the leased vehicles. GMAC "investors" are scared shitless [parphrasing] by the huge drop in Chrysler and GM products' residual values. But as bad as that is, the REAL fear is that Chrysler or GM will go belly-up. Once an automaker files for Chapter 11, the value of the leased vehicles craters deeply and completely, leaving the bankers exposed to billions and billions of dollars of EXTRA losses. There are lots of implications to this announcement. For one, as reported yesterday, GM stands to write-off over a billion dollars in lost residuals– which they paid up front to GMAC. For another, GM owns 49 percent of GMAC. (Chrysler's owners Cerberus own the other 51 percent.) GMAC's exposure to the gap in residual values is around $3.5b. And another: Cadillac/Saab's inability to lease their vehicles is going to cost them BIG in sales and market share (GM's other higher dollar rigs will be hurt by a lesser but not inconsiderable extent). It's highly unlikely a third party lessor will step into the breach for GM, and Toyota/Honda/Nissan or any of the premium marques are not about to exit leasing. The key takeaway: GM's going to lose a ton of deals without leasing. Their decline and fall continues.
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