Filed under: Car Buying, GM, Earnings/Financials, Canada
GM Canada gone from leasing business
Following the lead set by Chrysler Financial in the United States, GM Canada has announced that it will no longer offer leases through its GMAC Financial arm. While Chrysler LLC has not officially cut out lease deals in Canada, dealers up north report that the rates being offered to them are far too high to be feasible. GMAC spokeswoman Gina Proia told Bloomberg, "There's just a lack of funding in that country for lease assets." Both Chrysler LLC and GMAC are owned in part by Cerberus Capital Management LP.This leasing downturn is expected to hit hard in Canada, where leases make up a larger percentage of new car sales than in the States. To counter the issue, long-term financing deals with zero-percent interest are being established both by the automakers and by certain third-party lending institutions in an effort to continue offering the low payment solutions that the buying public has grown accustomed to. Thanks for the tip, Lance!
[Sources: Report on Business, Bloomberg]
Reader Comments (Page 1 of 2)
Joe W 7:16PM (7/29/2008)
Hey, I tipped you this at 11am. Way to go with getting on top of the news there guys! Joe
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Jay G 7:24PM (7/29/2008)
By the way guys...there are still some leases at lower interest rates, such as the SRX, but not for long. GMAC is offering some nice lease loyalty incentives for Finance or Cash use only to those in GMAC leases right now...and they don't even have to return the lease to take advantage of them.
TJ 9:21AM (7/30/2008)
What I can't believe is that an entire article was written about ChryFi and GMAC cutting lease programs without a single mention of their owner, CERBERUS.
I foresaw this a very long time ago, and is a very, very smart move considering the status of the securitization market.
TJ 9:22AM (7/30/2008)
damnit. How did I miss the mention the first time I read it. oh well, nevermind.
MemphisNET 7:23PM (7/29/2008)
With longer terms and lower interest rates on purchases, combined with the fact that the price of the car is more in-line with the US price now, it's actually a good thing for those walking into the show room. The average Canadian purchasing is keeping their car around for 8.5 years anyway. And there will always be alternatives through banks and other financial institutions. If anything, this will be good for the manufacturers, not negative.
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Jamie M 8:18AM (7/30/2008)
"fact that the price of the car is more in-line with the US price now"
Um, I don't know what your definition of "more in-line" is but auto prices in Canada are still significantly higher than the same car in the U.S. For example, a Pontiac G8 GT runs about $32K in the U.S. while the same car is about $42K in Canada. For an even better example, check out the price of a Nissan 350Z - $28K U.S. vs. $49K Canadian.
This, coupled with a higher tax burden is why more people lease in Canada than the U.S. In Atlantic Canada, add 13% HST to those prices and you see why most people just can't afford to finance.
08AuraXE 7:24PM (7/29/2008)
I finalized my lease on Monday with Saturn @1.1% for 4 years. Guess I got a deal. All the dealers I was shopping around with were phoning me today to tell me. They all sounded very down about it. The Saturn dealer phoned me to ask if I knew something about this and that was why I was pushing so hard to get the deal done.
I'm really happy, there's no way I would want to buy a GM vehicle at the moment the depreciation is out of control. This way I get to give it back in 4 years once the Canadian winters and potholes have had their wicked way. Is financing a car for 6 or 7 years really a good idea?
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Jay G 7:26PM (7/29/2008)
When all the GMAC leases are out of the system...in the time you would be returning your lease...the value of those vehicles will be stronger than they are now as a result of the lower number of vehicles NOT coming off lease to flood the used car lot.
So buying a car now would not actually impact you too much in 4 years should you wish to trade in, or trade up.
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JT 7:34PM (7/29/2008)
Why in the world would you lease a Saturn for 4 years? It only has a 3 year warranty!!!!!!!! GM has a supported 39 month lease on every model in every brand.......Your Saturn dealer is a crook .
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08AuraXE 8:29PM (7/29/2008)
It's all about weighing up the pros and cons. Saturn's warranty is 3 years bumper to bumper, however it's 5 years 160,000km on power train and same for roadside. My number 1 criteria was price per month. For the same price that I am leasing I could afford a $12,000 used car + 13% taxes. this put me in the '04/'05 range. Currently owning an '04 which I have babied I knew that the Canadian climate had taken its toll and things were beginning to go wrong. Therefore I surmised that low payments, okay-ish warranty, and a huge upgrade in safety (airbags all round, ABS and traction) this was a good proposition. The used cars I could afford, and I checked extensively, could not even compare + I had no idea how they had been abused. Financially I cannot afford the surprise of finding that the rotors need replacing or that some other major catastrophe is about to happen. I wanted reliable low monthly payments, no surprises and the security of a warranty. I feel comfortable that I have chosen a good product that will keep going for the time of my lease. My dealer is not a crook, he did try to get me to finance, however I'm not in a position in my life to do that at the moment. In a couple of years maybe, just not now.
Purifoy 7:36PM (7/29/2008)
. . . And the hits just keep on coming!
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Hugh G 8:10PM (7/29/2008)
BREAKING NEWS:
GM will now allow customers to purchase vehicles with PayPal.
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ken_aisin 8:29PM (7/29/2008)
I wouldn't even bother leasing any GM cr@p at 0%.
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ken_aisin 8:39PM (7/29/2008)
I wouldn't even bother leasing any GM cr@p at 0%.
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Quicksilver 8:49PM (7/29/2008)
With Cerberus having a stake in GMAC, we had to know this was coming.
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AZMike 9:00PM (7/29/2008)
it will be interesting to see how long it will take Mercedes Credit, BMW Financial, Infiniti Financial, and Lexus to drop their lease programs as well. although it is not mentioned for some reason, all the automakers are also taking big hits at the auction, regardless of where the vehicles were made, and how much they cost. many of the more expensive makes are taking $10,000-$20,000 hits below residual.
this will hit a lot of the high-line import makes especially hard, as 50-70% of their vehicles they sell are leased.
AZMike
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azzo45 11:45PM (7/29/2008)
What makes you think BMW,Lexus & Mercedes (2 out of 3 doing quite well) would follow the financially strapped Detroit 3 & DROP leasing???
As you yourself said... they move expensive cars by LEASING a high percentage.
AZMike 12:16AM (7/30/2008)
azzo:
let's look at the issue at hand, which I believe to be companies getting out of the leasing business because they are getting slaughtered from residual values being very wrong, as in way too high.
I also mentioned that these high-line vehicles were bringing $10,000-$20,000 less than their residual values at auction. there is no financial company out there that can continue to sustain these kind of losses, be it for a Cobalt or a BMW.
what's so hard to understand? the domestics never got as heavy into subsidized leasing like the imports did. I can open up the car section of the Arizona Republic any Saturday and see pages of ads for $45,000 BMWs for less than $399 per month on 36-39 month leases. this is truly subsidized leasing. BMW can make this low payment from two things: an artifically high residual, and a subsidized money factor (interest rate).
the downturn in the economy doesn't just affect "poor folks", but everyone. many of the high rollers who 'had' to have a high-line car (let's think mortgage brokers and realtors, to name two) have now gone south on everything. most don't even have a job anymore, and if they do, they're making 20% of what they did two years ago.
every financial service company plans for a certain number of repossessions, usually about 0.75% for any primary company. of course, secondary finance companies are much higher, but they generally don't do leasing.
I'm a former new car dealer myself, and still have plenty of friends still in the business.
I'm basing my comments on my review of the weekly auction sheets from both the ADESA and Manheim auctions all across the country.
AZMike
azzo45 8:26AM (7/30/2008)
Mike: You say you have experience in the biz & I'm not an expert (I'm not in a sales related job).
However, those $399 leases you mention require the customer to put more up-front $$$ & most of these models hold a much higher resale than the domestics.
In this economy I'm sure it is tough for these companies to re-lease or make an outright sale on a 3-4 year old BMW, Lexus or MB that still could be valued between 35K--55K (perhaps higher depending on model).
Leasing has always seemed to me like a financial loss for ALL the car companies. I once had a $33,000 Dodge Ram truck, $0 down & $150 a month for 24 months. I mean except for misc. fees my cost for two years was $150.00 X 24 months. How could DCX (@ the time) profit letting me drive a $33,000 truck for about $3,600?
Obviously I had one of those employee price, ultra competitive leases. The imports we are talking about have a higher down payment, more misc. fees, & a higher monthly, but also the customer is driving it for a sliver of the MSRP.
The companies you mentioned also are in much better financial shape overall. Leasing is a sales tool that has allowed them to gain market share... I don't see them ending what assisted them gaining that market share.
Joe 9:23AM (7/30/2008)
I believe around 80% of luxury car buyers lease - don't quote me on that, but it's a very high majority percentage. Removing leasing for this section of the market would be detrimental, these buyers do not want to be paying $1000/mo+ for 6+ years to own their cars.
Lease, pay half that, not have to worry about selling/costly repairs, and get the latest and greatest in 2-3 years. Frankly, it's smart. As long as you can keep within the allotted millage (10-15k per year) and don't mind not customizing your car much, leasing is great.
Speaking personally, the chances of me buying a new car (as opposed to leasing) in the foreseeable future is slim to none. Lease deals on anything from a Civic, to an Accord, to a 3-Series and all the way up the latter are just too good to pass up, in my opinion anyway.