GMAC Leasing Debacle: Bankruptcy Fears Loom Large
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.
More by Robert Farago
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Yank, Those balloon deals are not like mortgages. They come with an option to return the car or make the balloon. There is no penalty for turning in the car except for damage and mileage just like any other lease. I believe one of the reasons they created Smart Buy was that it allowed them to get around some state laws that made it tough to lease to folks that didn't have an LLC or other business set up that could lease the car. Also, I believe many states force them to offer a refinance at no greater than the current payment for people who may want to keep the car.
FYI, open end leases tend to perform poorly at the consumer level in weak markets. Chasing consumers for the few grand at stake is not an economic proposition. Sadly, there is no true solution other than lower industry volume. In earlier days, we used to call it 'pull ahead.'
The problem with Ford is they don't have anything fresh and new. Flex was a flop. Edge was a precursor to that. Mustang is stale. Focus and Fusion have potential, but we're talking about Ford here. Bunch of 90%'ers. Just won't go that last 10%. The cars have potential; just not in their current form. They look nice enough, and appear to be built structurally good enough. So dull and boring though. Performance? No. Price? No. Economy? No. Anything nifty or special or unique? No. Maybe Ford was just a two hit wonder? They had the Model T and the phenomenal original Mustang(64.5-73). Some might say and try and claim F150 and/or Taurus. But I say no, not really. Nothing special. Chevy at least has Camaro and the Volt. Chrysler's last shot was the Challenger(Fitting?). Nothing but more of that 300 ilk and all it spawned(Chargers and Magnums and what all). I about puked when I saw how much the Camaro weighs. Disgusting. A big heavy American saloon car. How can one expect for it to "handle" well? This same handling crowd are the same ones who would dock this vehicle for having a "chuck wagon" or truck axle if it had one. Instead though, they got their weak and useless front wheel drive reminiscent IRS so they can under steer these tanks right into the ditch. Cars like this are only good for drag racing and need a strong differential for that. It's beyond easy to double or triple a cars horsepower for not a whole lot of money. Takes some money to upgrade the rest of the drive line to be able to be reliable to support the increased power. If you ever put a decent pair of tires on this car; you'll snap an axle. But the point is mute. Remember when they stopped selling the Camaro the last time? Said it didn't sell well? Recount the price of it at the time. The very group of people who would have bought that car could no longer afford too. Watch that be the case all over again. The initial group will get theirs then watch sales fall off a cliff. Besides, it looks just like the Challenger! Going to lunch today with two others, one saw the Challenger on display and said "I thought that was the new Camaro this morning when I first saw it! It looks just like it!". And it does. So about five years ago, GM started advertising this Camaro, and somehow, Chrysler beats them to market with an identical looking car? I personally don't think any of the three are going to make it. They just don't have the product and they just don't have it in them anymore. Twenty or thirty years of doing their customers wrong; their not going to outlive this one. First of all, they build a piece of junk, sell it at a high price, have one go through a miserable experience at the dealer where they are swindled and robbed for all they've got, then have repeatable miserable and expensive trips to the service department because of the vehicle. Everyone's owned them, but no one has forgotten them. Anyone who lived through the 1980's remembers what it's like to own a domestic vehicle. Things really haven't changed all that much.
Maybe our automotive attentions spans are far too short. Instead of a product that gets stale in four years, maybe we ought to learn to appreciate designs that last ten years or more with minor tweaks and improvements.