Leasing and the Big Three Automakers

Auto financing companies want out of the leasing business. Chrysler (DMX) Credit said it is getting out of the leasing game entirely, Ford Motor Co.’s (F) credit arm and GMAC are tightening leasing rules, and independent financers like Wells Fargo (WFC) are no longer interested either.

The reason? High borrowing costs, write-downs of existing lease portfolios and continued pressure on used vehicle pricing.

So while it may be early to try and quantify what this shift might mean for the industry, its recent pullback looks more severe than the last time it scaled back in 2001, says Citigroup’s Itay Michaeli, who noted that leasing typically comprises 20% of new vehicle sales.

If the pullback in available leasing is widespread, the analyst anticipates a variety of changes in vehicle mix, market share for the three Detroit automakers, the used car market and industry sales.

As a result of this potentially necessary move, Mr. Michaeli considers it a short-term negative for shares of Ford and General Motors Co. (GM), and maintained a “sell” rating on both.

He noted that with about 2.8 million vehicles scheduled to come off lease in 2009, consumers without the option of originating a new lease could either:

• Purchase a new and cheaper car with attractive loan incentives.
• Buy a used vehicle in order to keep their monthly payments low.
• Lease a new vehicle from another carmaker.
• Return an off-lease vehicle and either not replace it or delay a purchase.

In a research note he said:

Although these trends are already occurring to some extent, further credit tightening could cause near-term acceleration.

In terms of market share, the analyst feels the negative impact for the Big Three would be felt most in the car and crossover segments, where Japanese competitors have a healthy piece of the market. Full-size pickup trucks, for example, are considered less vulnerable due to factors like higher brand loyalty.

Comments

[IXLR8:]

Another automotive column that is poorly researched and obviously biased.

Big Three, Big Three, Big Three... Are they are the only ones having trouble??

Why not report that BMW leases 60% of its total US sales and is trying to cut them back?

Audi is praying that its new A4 is not affected by lease problems--why isn't that in your article?

What about Lexus and Mercedes? Aren't their sales mostly leases and aren't their sales down sharply?

Looking forward to the other half of your column....

2008 Aug 01 10:44 AM

[User 208427:]

BTW, don't think that Chrysler is DCX any longer. It is privately held by Cerberus.

2008 Aug 01 12:21 PM

[CaptBob:]

In the not too distant past there was a the great age of "The Instant Approval". There, large masses of the greater unwashed, unemployed and debt addicted were indistinguishable from the legitimate upper income levels of society.

That age is gone!, There is no liquidity left to fund it. All that is left is a great contaminated pool of pollution akin to the love canal but composed of noncollectable debt rather than toxic waste.

It will take some time to clean up, longer to recover completely, and the poor credit scarred American consumer may wear the "Stigmata" for life.

Oh-well, first it's pay back time, then both ends of the economic-(loan/borrow)... see/saw will equal, then at long last, we may-(be forced to)--become a saving nation.

2008 Aug 01 02:15 PM