Metric1
25-11-2008, 07:56 PM
The financial arms of Chrysler LLC and General Motors Corp. are getting out of the business of leasing vehicles as credit tightens and resale prices for gas-quaffing trucks fall, according to company executives and independent sources.
The move, effective Aug. 1, could spark a backlash among dealers and consumers. In Canada, an estimated 43% of drivers lease their vehicles, double the U.S. rate of 20%.
Chrysler told dealers in Canada and the United States that Chrysler Financial will stop offering financing for vehicle leases, steering buyers into low-interest loans to buy the vehicle outright, sources said. Dealers wanting to offer the leasing option would have to find their own source of financing, Chrysler said.
Chrysler told its Canadian dealers of the change three weeks ago, according to an industry source familiar with the situation. GM dealers in Canada were to be told about the change affecting its GMAC financing unit on Friday. GM's U.S. dealers are also expected to be affected. A GMAC spokesman would not confirm the change, saying there is no public announcement at this time.
"The pressures on leasing are going to follow everybody," Chrysler co-president Jim Press said on a conference call on Friday. "There are a lot of financial requirements for leasing to not make it as attractive as it had been."
Auto-financing companies have seen the value of their used cars and trucks plummet amid a collapse in sales in the United States and discounting of new vehicles in Canada. Residual values -- an estimate of what a vehicle will be worth after its lease ends -- have tumbled in both countries. Ford Motor Co. on Thursday took a charge of US$2.1-billion on the declining values of leased vehicles.
GMAC is majority owned by New York private equity company Cerberus Capital Management. Cerberus also controls Chrysler.
"The removal of the need to finance leases simplifies the financing challenges faced by Cerberus," said Paul Taylor, chief economist with the U.S. National Automobile Dealers Association. "But it removes an important option for many consumers."
Geoff Helby, an analyst with J.D. Power & Associates in Toronto, said Toyota Motor Corp. and other automakers that offer attractive lease rates and decent residual values could win more business from the Detroit automakers as a result of the move. "It would definitely put Chrysler and GM at a serious disadvantage."
Chrysler has pulled its leasing for July in Canada, one source said. The company's senior Canadian management told dealers earlier this month that "‘We're basically out of the lease business. We don't have the funds,'" the source said.
The company is steering consumers worried about monthly payments to financing contracts as long as seven years, he said. "It's ridiculous because you're really taking the consumer out of the market in the long-term."
Chrysler and other automakers have slapped incentives of as much as $12,000 on vehicles in Canada and offered financing deals such as 0% for 72 months to lure buyers into purchasing the vehicle.
"We can get deals for people that are very comparable if not better [than leasing]," said David Paterson, vice-president of corporate affairs for GM Canada, adding that GM buyers are increasingly choosing financing over leasing. Financing now represents 60% to 70% of GM Canada sales, he said.
That's a big blow the the US economy!
The move, effective Aug. 1, could spark a backlash among dealers and consumers. In Canada, an estimated 43% of drivers lease their vehicles, double the U.S. rate of 20%.
Chrysler told dealers in Canada and the United States that Chrysler Financial will stop offering financing for vehicle leases, steering buyers into low-interest loans to buy the vehicle outright, sources said. Dealers wanting to offer the leasing option would have to find their own source of financing, Chrysler said.
Chrysler told its Canadian dealers of the change three weeks ago, according to an industry source familiar with the situation. GM dealers in Canada were to be told about the change affecting its GMAC financing unit on Friday. GM's U.S. dealers are also expected to be affected. A GMAC spokesman would not confirm the change, saying there is no public announcement at this time.
"The pressures on leasing are going to follow everybody," Chrysler co-president Jim Press said on a conference call on Friday. "There are a lot of financial requirements for leasing to not make it as attractive as it had been."
Auto-financing companies have seen the value of their used cars and trucks plummet amid a collapse in sales in the United States and discounting of new vehicles in Canada. Residual values -- an estimate of what a vehicle will be worth after its lease ends -- have tumbled in both countries. Ford Motor Co. on Thursday took a charge of US$2.1-billion on the declining values of leased vehicles.
GMAC is majority owned by New York private equity company Cerberus Capital Management. Cerberus also controls Chrysler.
"The removal of the need to finance leases simplifies the financing challenges faced by Cerberus," said Paul Taylor, chief economist with the U.S. National Automobile Dealers Association. "But it removes an important option for many consumers."
Geoff Helby, an analyst with J.D. Power & Associates in Toronto, said Toyota Motor Corp. and other automakers that offer attractive lease rates and decent residual values could win more business from the Detroit automakers as a result of the move. "It would definitely put Chrysler and GM at a serious disadvantage."
Chrysler has pulled its leasing for July in Canada, one source said. The company's senior Canadian management told dealers earlier this month that "‘We're basically out of the lease business. We don't have the funds,'" the source said.
The company is steering consumers worried about monthly payments to financing contracts as long as seven years, he said. "It's ridiculous because you're really taking the consumer out of the market in the long-term."
Chrysler and other automakers have slapped incentives of as much as $12,000 on vehicles in Canada and offered financing deals such as 0% for 72 months to lure buyers into purchasing the vehicle.
"We can get deals for people that are very comparable if not better [than leasing]," said David Paterson, vice-president of corporate affairs for GM Canada, adding that GM buyers are increasingly choosing financing over leasing. Financing now represents 60% to 70% of GM Canada sales, he said.
That's a big blow the the US economy!