AFSCME 3357-HOF'S BLOG

Chrysler Leaves Leasing
GMAC & Ford Motor Credit - Kind of

Following a trend in the auto industry to announce bad news on Friday, this Friday Chrysler announced that it would be ending the consumer leasing business as of August 1. Apparently this decision was leaked to the Wall Street Journal and some other sources before it was disclosed to the dealer network. Chrysler has the most Truck and SUV heavy line-up in the Detroit 3, and in the wake of rising gas prices Chrysler has been hammered by low trade-in values of its models. The low trade-in values have killed the lease residuals.

Maybe Chrysler didn't have much of a choice, but this decision seems like a critical mistake by Chrysler. Even if it could not continue to make the leases, a public disclosure that it was suddenly leaving the leasing business flashed to the public a stunning lack of confidence in the value of its products. Witness the front-page headline in the New York Times: Plummeting Resale Values Lead Chrysler to End Leases.

It would have been smarter to simply continue to offer leases (in theory) but price those leases so high that nobody would want them. Apparently, that's just the route that Ford is taking. GM is apparently going both ways, GMAC will no longer write leases in Canada (where leases comprise over 40% of the market thanks to GST (sales) taxes of up to 18%), while leases will be harder to come by in the US.

It's clear that all of the Detroit 3 are taking billions of dollars worth of losses in lease residuals due to the falling used car values. Now they are having trouble attracting money to underwrite leases at any cost. What is coming out of this looks like a feedback loop of falling sales causing increased discounts, causing lower residuals, causing lower trade ins and lease residuals, causing falling sales, and so on. At some point another variable comes into the picture and adds to the downward spiral, and that is diminished consumer confidence in the viability of the brand.

What will it take to get them out of this? Some external force. It may be an improved economy. It could be a hot new model. (If you see one, let me know.) A sharp decline in gas prices MIGHT do it. I don't think a federal hand out will have any significant effect, at least not at the $300 million proposed by Senator McCain or the $4 billion level Senator Obama has suggested.

I wonder what I can get for my leased Canyonero?