So the bottom line is, if you really want “more” care than you can afford–go used! Cars are so well made these days as compared to decades past that the “used” stigma doesn’t actually have much grounding in reality. This holds especially true for high quality cars like the 3-series Bimmer. Let someone else eat that high initial depreciation, then swoop in and get yourself a nice car for a good price.

i’m thinking, both.

This is the a company that couldn’t market free gold bullion. Did you witness the whole Taurus/Five Hundred/Freestyle debacle? How about the Zephyr/MKZ thing? Or the wholesale inability to sell the only hyrbid SUV that’s not hideously expensive?

Ford, bless them, make some decent cars. They’re marketing, though, makes GM’s equivalent look like wizards by comparison.

There are a lot of companies that lease their company cars AND many of them require domestic vehicles. I’m not sure if they only require a U.S. brand name or actual location of assembly and parts content- the latter would knock the Mexican Ford Fusion/Mercury Milan off the list for some.

This will be a great way for them to unload the poor selling Taurus/Sable twins, too! Hopefully the Fusion/Milan won’t see a huge surge in fleet sales because it’s among the best domestic cars in resale value…I’d hate to see that tank, but doubt that Ford really cares about that right now.

I’d also be willing to bet that the sort of buyer who would lease a big SUV or full-size truck in the past is out of that market segment for good by now. The buyers who still need these kinds of vehicles realize that it’s for life- so they’ll be buying, not leasing anyway.

I am still amazed at just how low the lease payments can be on cars like the Honda Accord, though. With $2200 due at signing, the LX-P automatic is $199/month and the EX-L V6 is a whopping $259/mo (both for 3 years). I can’t imagine a car payment below $350 per month, but I’m starting to think I need to find out! Or, even more inconceivable, what might it feel like to actually keep a car until it’s PAID OFF??? =)

In the traditional “down payment/bank loan” purchase model, first you fork over a chunk of money up front, THEN you pay off a loan over time via a series of payments. Only at that point do you get the title from the bank and really “own” the vehicle.

In the leasing model, first you make a series of payments over time, THEN you fork over a chunk of money (the residual amount) if you want to “buy” the vehicle. Only at that point do you get the title from the lessor and really “own” the vehicle.

Either way, a financing entity holds the title to the vehicle until the full purchase price of the vehicle is paid off, so you don’t own it until their obligation is satisfied.

A vehicle will be worth what it’s worth at a future point in time, regardless of which of the three possible methods you chose to pay for it – cash, finance or lease. It just boils down to how you like to manage your money, and what other options you have at your disposal to make that money work for you.

Thus, I disagree somewhat with Ken’s statement that a lease is “nothing more than a long term rental contract.” It’s a long term rental, but with an option to purchase at the end. That’s an important distinction. With traditional financing, you’ve made the decision that you want to truly “own” the vehicle up front. With a lease, you make that decision at the end of the financing period.

I wouldn’t call it a clean slate as their assets are getting severely reduced and borrowing power decimated. And it’s probably not as of Aug 1, but as of June 30th (could be wrong though). But, yeah, they’ve written down the whole value. They aren’t going to write-down $2 billion per quarter for three years. Ford doesn’t have that much in outstanding lease assets.

You are saying that they all drew a line as of August 1, accounted for the residual losses on all outstanding lease as of August 1, and are starting over with a clean slate.

I’m on a BMW lease and I got a manual. My 1-series costs me less than a Honda Civic would have, gets better fuel economy, and if you lease a 1-series you get insurance for €20/month.
Excluding manual transmissions on BMWs? How weird can BMWUSA be?

Not accurate. The write-downs are for all outstanding vehicles on lease to Ford Credit/GMAC/etc. Further deterioration could lead to further write-downs, but my guess is that Ford tried and GM (for the amount they do book of GMAC activities) will try to overstate the issue as much as possible (leagally and financially sound) in order to write down as much as possible in one hit. That way, you don’t have to write down more in the future.

The only way in which they deal with this for the next 3-4 years is in lower cash from the resale of vehicles as they come-off lease. But for the important part – how they account for that expected value, which drives your booked assets and hence credit score/borrowing ability – this is pretty much a done deal unless something even more drastic happens.

They still have to deal with decisions they made in the past 3-4 years that will come due in the next 3-4 years.

The residual losses are from vehicles leased in 2004/2005 that are coming to term now.

Did the manufacturers forget that when you lease a vehicle you have to sell it twice, once at inception and once at termination to convert it to money.

What we will soon see is that GMAC will make leasing almost cost prohibitive or restrictive enough to crater the lease business on GM vehicles. While Mark LaNeve may claim otherwise, and GM may continue with subisidized leases for August to avoid dealer shock and anger, leasing will be constructively phased out one way or another in the US. Until the problems at GM and GMAC are solved, leasing will not return as a key marketing tool. Sure, you may still be able to lease a GM vehicle using GMAC’s now lowered standard residuals, but the payments will be ridiculously expensive.

My bottom line is that GM is just trying to avoid more bad PR and softening the blow to the dealers. GMAC reports tomorrow and it will be not be pretty IF they take the writedowns necessary on the current lease portfolio, never mind the great unknowns about Rescap. GM itself, when it reports on Friday, will remain mired in the muck thus possibly pressuring the rating agencies to further reduce the creditworthiness of the company. Unfortunately, it’s a virtuous circle and ultimately leads to a curtailment of leasing.

Just because Chrysler is ending all leases does not mean that GM and Ford are too.

The key here, though, is how much will this impact sales. Ford and GM will find ways to serve their contractors and work fleets for their trucks separate from their retail customers. So, let’s focus on retail.

The Expedition, Navigator, Explorer and F-series combined sold about 55,000 units in June. My best guess says that about 60% of that was retail at best (based on Ford’s recent statements). So, you have 33,000 vehicles at risk in June. Approximately 20% of Ford’s vehicles are leases, which means they are at risk of losing 6,600 units off of their June sales. Not insignificant, but not huge – about 3.5%. If the elimination of 3.5% of sales shores up your finances to provide better leases for cars/CUVs and keep your credit rating in good shape, I think it is a GREAT move. Basically, truck sales have fallen so much that people are no longer coming to the dealers looking to get a cheap lease on an Explorer. So, in reality, the total risk of lost sales is low. And of those 1,400 Explorer buyers a month who can’t find leases, it is likely that some of them will stay with Ford in an Edge or Flex, which still have leases.

This isn’t permanent either(at least from Ford and probably not GMAC). If large vehicle residuals improve, lease rates will likely be adjusted again. This move is simply to avoid any additional write-downs. Basically, when Ford wrote-off all that lease value, they were estimating all future value into that. GMAC will do the same with their earnings. By not offering cheap leases until you have a clearer picture of residuals, you minimize the size of future write-downs in case the market deteriorates even more.

AGR, that “sounds right,” since we have so much trouble with electrical components, but I don’t know that it is. I don’t think electronics “age.” If they work, they work and will continue working. there is no “wear,” unless you’re talking about electric motors.

Nonmoving electronics can suffer failure, but it’s not something you can predict; unlike mechanical issues, which come with predictive traits (sounds, performance dropoffs), electronics issues are “On/Off”, and come with no warning.

Typically, faults come from the following:
* Corrosion: A car is a nasty environment; you get moisture eveywhere. Some manufacturers (VW) have a really bad habit of putting body computers right where water will drain and pool.

* Electrolysis: When you pass current through devices, you can (again, if the component is badly-designed) get an buildup of electrolysis-derived scale that will, eventually, short something out. Sensors bathed in fluid will do this.

* Heat doesn’t do any favours to silicon, plastic, ceramic, solder or wiring, and it can accelerate the #1 and #2 above. Cold and heat combined (like, say, an engine compartment in winter) are really bad for causing thermal-expansion based cracks.

* Static discharge. Zap!

* Vibration. The soldering (yes, I know, it’s not solder in the traditional sense) is precision work. Precision work doesn’t take well to five years of being shook about like tumbler.

* Voltage irregularities. If your battery or alternator are supplying low, high or dirty power, that’s not healthy.

* Tin whisker effect. Metal shavings love to collect in places where static or magnetic conditions allow. If they get long enough, they’ll bridge a circuit and Zap!

* Software. Is. Buggy. A sensor that looks like it works in the factory might not record the right readings in certain circumstances, like every fourth Thursday, or each leap year, or when the moon is waxing gibbous. Clunk. Twang. Chug-chug-chug.

Writing this made me realize what a minor miracle it is that cars work at all. It also reminds me that getting into an accident in a car that’s wired to the gills is guaranteeing thousands of dollars of exploratory surgery.

The other aspect is the addition of electronic features in many vehicles…the more expensive vehicles have a higher and more complex electronic content.

The extended warranties that are comprehensive and cover the majority of electronic componentry are priced accordingly. On a modern vehicle a powertrain warranty is not useful if it does not cover electronic components.

A 36 month lease in most instances offers an excellent alternative to either get out of the vehicle or renew the commitment for the same vehicle. Lately a new vehicle is less money than renewing the commitment on the old vehicle, and having to purchase an extended warranty.

Correct me if I’m wrong; it’s not an area in which I have any particular expertise.

Driving a car under warranty also has tremendous advantages. For instance, GM has a really great certified pre-owned program that allows you to extend the warranty sometimes to 100K.

A 4-5 year old vehicle is an electronic “beater” compared to a new vehicle…even if mechanically they are comparable.

The fact that many electronics are proprietary to the individual manufacturers further accelerates the progression of vehicles into “electronic beaters” which become challenging and expensive to diagnose and repair.

Great write up overall. One question though… you consider a 4 year old vehicle a beater?

Just a thought.

Bunter