By on July 28, 2008
It\'s no longer the lease they can doIt's no longer a rumor, wild-ass or otherwise. We've just received word that GMAC has informed their Canadian dealers they will no longer offer vehicle leases as of August 1st. U.S. dealers will get the news during a conference call with GMAC this afternoon. Technically, GMAC may still be offering leases, but they'll be so onerous it'll be the same as killing them dead. Meanwhile, U.S. leases will be replaced with a "Plan B." We're thinking low monthly payment with a balloon (the return of SmartBuy?), but we haven't received details on any non-lease lease-a-like deal yet. GMAC joins Chrysler Financial as the latest to scuttle leases after being stuck with a bunch of overestimated residuals. Can Ford be far behind? We'll let you know as we find out.
Get the latest TTAC e-Newsletter!

Recommended

31 Comments on “TTAC Called It: GMAC Ceasing Leasing...”


  • avatar

    Despite the Cerberus connection, I’m much more surprised by this than by the same move by Chrysler.

    The details of Plan B ought to be interesting. My bet: balloon loans, car loans with a large payment at the end of the term. Essentially a lease with a required purchase at the end.

    If GM cannot afford the liability of leases, then which institutions can? Who’s covering the losses of non-OEM leases?

  • avatar

    The real question is will Toyota and Honda dealers be able to continue to offer consumers leasing terms that their customers are now use to.

  • avatar
    Pch101

    Ford is probably next. Same problem as Chrysler and GM — too many trucks and SUV’s.

    The competitors have more cars, as opposed to SUV’s, to offer, so they won’t be so pressured to cut their programs entirely. However, they probably won’t be offering great lease deals on their SUV’s, unless it’s a proven sales winner with predictable residuals.

    You are witnessing the next step in the growing global credit crunch. Contrary to what the popular media has claimed, this is not strictly a subprime mortgage problem, but is an issue that affects all sorts of loan products at every tier in the system.

    With investors fleeing the credit market, it’s hard to get what’s left of it. And with individuals and corporations alike having become so addicted to easy credit, a return to the old standards combined with the sharp pullback is going to be very painful.

    http://finance.yahoo.com/loans/article/105461/Worried-Banks-Sharply-Reduce-Business-Loans

  • avatar

    I think Toyota and Honda will be able to continue offering leases, because they’re in better financial shape and because their resale values haven’t plummeted. For a Civic or Corolla, resale might even be up.

  • avatar
    psarhjinian

    Is this for all of North America, or just the United States?

    If it’s for the whole continent, it’s is going to be particularly nasty for GM Canada (Canadians lease at twice the rate of Americans) and an outright disaster in Quebec (where balloon financing is illegal).

  • avatar
    windswords

    It looks like profitablility (or a smaller lo$$es) is trumping market share. It used to be that the automakers would sacrifice profitablity to preserve marketshare, not anymore. The private Toyota distributorship I worked for did not have marketshare as a consideration when leasing. If it did not make them money anymore they didn’t do it. And they were profitable overall at the time so it wasn’t a matter of life or death for them.

  • avatar
    jaje

    This will be a short term hurt for them and a long term loss. No longer able to offer “corporate” leasing they will likely lose some sales (not a whole lot as dealers will arrange with local banks for leasing – but lease rates will be much higher as banks will not give them out to anyone nor want to lose money on an SUV turn in that is worthless). Over the long term pulling leasing now will not help as people for the next 4 years will still be turning in leased SUVs / trucks that were still under the original framework.

    My truck lease ends June 2009 on my truck and they want $13k buyout [at that time it will be a 36k mile 2005 silverado 2500HD] – I think I’ll offer them $6k and see if they bite).

  • avatar
    carguy

    That will be a major blow for commercial and luxury sales. While dealers may be able to find third party leasing companies, they will most likely incur higher rates and vastly lower residuals which will make the monthly payments uncompetitive compared with other makers (other than Chrysler).

  • avatar

    “My bet: balloon loans, car loans with a large payment at the end of the term. Essentially a lease with a required purchase at the end.”

    I don’t know Michael sounds like a recipe for high default rates at year 5 of the loan and banks being stuck with cars and trucks they have to auction off.

    Maybe people will simply have to buy what they realistically can afford instead of simply buying what they wished they could afford.

  • avatar
    Qwerty

    I don’t know Michael sounds like a recipe for high default rates at year 5 of the loan and banks being stuck with cars and trucks they have to auction off.

    Planning for the future has not exactly been a strong point for banks recently. All that matters is generating business today.

  • avatar
    mel23

    How smart was Ford when they lined up all that credit 18 or months ago? As I recall, they went to the well for an amount and were surprised to find much greater interest than they expected, so they lined up more financing that they had planned. Just in case. It would be interesting to know who in Ford favored the approach they took.

  • avatar
    toxicroach

    What about 120 month loans?

    THE PAYMENTS WOULD BE SOOOOO LOW!1! You could buy a Malibu for only 220 a month!

  • avatar
    blowfish

    Planning for the future has not exactly been a strong point for banks recently. All that matters is generating business today.

    Some said Banks had been flushed with deposits from Arab, China so they had to lend out money with lowered borrowing criteria. Now these big banks are playng debtors too, knock on the door of White house to get bail out .
    Foreign banks also get choked too by buying these ABCP Asset backed commercal papers.

    They were handing out loans to whoever has a pulse, your pet dog & gold fish could all get loans too.

  • avatar
    gamper

    Link to source please.

  • avatar
    blowfish

    What about 120 month loans?

    the logner the loan gave no advantage to the borrower. Look at the payment on 36 mths vs 48.
    It doesnt go down that much , but u pay more for interests.
    Leasing used to costs more than loans, but fierce competition drove rates down, Lease does have a higher inherent risk, as residuals can shrink with tanking economy.

    Leasng is good idea for biz, salesman is the cheapest way to rent a car. Just residuals can be a big gambling.
    Good products u never have to worry, IE Toyondaissans or any of the Panzer wagens.

  • avatar
    toxicroach

    I know its not a good idea for the borrower; that doesn’t mean GM won’t DO it.

    And trust me, just cause something is bad for the borrow won’t stop them from doing it in droves if it lets them drive a car that makes them look a couple of rungs up the socioeconomic ladder.

  • avatar
    Pch101

    What about 120 month loans?

    This is not going to happen because of the value of the collateral. A lot of cars simply can’t be expected to survive for ten years, particularly in a condition worthy enough of keeping as collateral for a loan.

    Even these 84 month loans are pushing it. You could mitigate it somewhat with a higher down payment, but then what would be the point?

  • avatar
    toxicroach

    Well, with a 120 month loan, sure the collateral is crap at the end of it, but GMAC would have the ability to sue the people who defaulted and get wage garnishments, etc… because it is the debtors responsibility to make up the difference between the residual and the amount owed, not the creditor.

    Which is a better position to be in vs. a lease on a car that is worthless. Not an ideal situation, but this is GM we’re dealing with here. They are the masters at slowly stringing themselves out.

  • avatar
    Pch101

    Which is a better position to be in vs. a lease on a car that is worthless.

    It actually isn’t. The default rates would be awful, and the collection and administrative costs would be prohibitive.

    They are better off just adding incentives so that they can shove them out the door with five year loans. They’d be better off still if they made cars that people wanted to buy at a higher price, but one thing at a time here…

  • avatar
    threeer

    Finally…an end to the fleecing, er, leasing of the American consumer. I can’t say I’m sorry to see it go. If you can’t afford to buy it outright, you shouldn’t be able to rent it for three years, either. I’m glad to see the market starting to correct itself somewhat. Smaller, more efficient cars, removing leasing as an option..of course, I’m afraid that the Big 2.8 will do exactly as others have said. They’ll simply offer longer terms of loans, which will mean buyers will be upside-down in their loans longer, racking up more interest payments.

  • avatar
    Happy_Endings

    Link to source please.

    It wasn’t that difficult to find.

    http://www.financialpost.com/story.html?id=680397

  • avatar
    macarose

    Wage garnishments are not possible in a few states and the cost of a repo, stroage fees, title processing issues, transporting the vehicle, detailing and PDR work (among many other things) is more than you would imagine. Most finance companies are looking at $1000 to $1500 per vehicle cost before it even gets on the auction block.

    Then you have litigation costs along with the fact that the buyer will most certainly bad mouth your product for a very long time. In the end the company definitely does not come out ahead.

  • avatar
    toxicroach

    They wouldn’t even have to administer it; charge some high interest rate, sell it to a creditor when they default.

    I’m not saying its good. Its a terrible idea. But GM isn’t going to sit on its ass and let 20% of its sales disappear. They will do something to try to get those sales. Might be balloon payments, might be a return to employee pricing, might be super long loans. It won’t be good for anyone. But they need to move that metal, and they will do whatever they can do accomplish that.

    Which is why my 120 month loan idea isn’t as bad as you think. Plenty of business manage to loan money with less security and make money doing it. Others prosper collecting those debts.

  • avatar
    Pch101

    They will do something to try to get those sales.

    Higher incentives and heavily subsidized loans. The usual story, but the incentives are going to get awfully big on some of those vehicles. Those 0% loans will seem even better when interest rates go up.

  • avatar
    ihatetrees

    Meanwhile, they’ll be replaced with a “Plan B.”

    My plan “B” is to wait for bankruptcy and buy a new Silverado for $8K cash…

  • avatar
    dpeppers

    Is this annoucement for Canada only?

  • avatar
    gamper

    Happy_Endings wrote:

    Link to source please.

    It wasn’t that difficult to find.

    http://www.financialpost.com/story.html?id=680397

    Happy Endings, that article doesnt confirm anything. Read it again. At what point does this story revert to wild ass rumor status?

    I am really going to be shocked if the country’s largest automakers does away with leases altogether. If it does, I will officially get on the bankruptcy bandwagon.

  • avatar
    AGR

    In Canada there are GM dealers contacting customers and advising them that they have till Thursday July 31 to lease a GM vehicle.

    It could be a tactic to generate month end business, and it could be factual.

  • avatar
    Areitu

    Maybe GM plans to let people Rent-2-Buy their cars for only $30 a day.

  • avatar
    Captain Tungsten

    Still nothing about this in either of the Detroit rags. Maybe TTAC called this one a bit too soon? (at least in the US)

  • avatar
    Landcrusher

    I don’t lease, so this is second hand, but what I hear is that if your lease is nearly over, and you wish to buy the car, they will not negotiate.

    Is this true?

    You mean that with all the SUV’s coming back at values WAY below residual, they have NO ONE figuring out a way to sell more of these cars to the lease holders at better than market value?


Back to TopLeave a Reply

You must be logged in to post a comment.

Recent Comments

  • Art Vandelay: Big deal. There is a used dealer near me that could probably claim to be number one in reconditioned...
  • Art Vandelay: I was the Paseo hater, but I’d daily this, with a stick of course. That thing screams 90s. I want...
  • Arthur Dailey: In the GTA I see at least half a dozen everyday. And the numbers are growing. However as we know,...
  • Arthur Dailey: True. Henry Ford was a despicable, racist, fascist sympathizer, who failed in nearly every endeavour...
  • MKizzy: That fake photoshopped Honda Odyssey in the photo looks a lot better than the real one.

New Car Research

Get a Free Dealer Quote

Staff

  • Contributors

  • Timothy Cain, Canada
  • Matthew Guy, Canada
  • Ronnie Schreiber, United States
  • Bozi Tatarevic, United States
  • Chris Tonn, United States
  • Corey Lewis, United States
  • Mark Baruth, United States
  • Moderators

  • Adam Tonge, United States
  • Corey Lewis, United States