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Chrysler Ends Auto Leasing

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According to this Bloomberg article, Chrysler can't afford to lease cars anymore since the resale values are dropping so fast. .

we have a car bubble to go with our housing bubble. No surprise, since so many home equity loans went into buying the shiny new SUVs.

Chrysler Says Lending Unit to End Auto Leases Aug. 1 (Update3)

By Mike Ramsey

July 25 (Bloomberg) -- Chrysler LLC, hurt by plunging prices for used sport-utility vehicles, said its finance unit will stop offering leases to customers on Aug. 1.

Rising borrowing costs drove up consumers' lease payments, helping spur the shift, President Jim Press told reporters today on a conference call. Dealers can still tap other lenders for leases once Chrysler Financial exits that business, he said.

Other automakers may have to follow. Ford Motor Co. took a $2.1 billion second-quarter charge yesterday for leased trucks owned by Ford Motor Credit as $4-a-gallon gasoline eroded the so-called residual values projected for the vehicles when they're returned.

``After a $2 billion loss on residuals, I would not be surprised to see a pullback on leasing,'' Lehman Brothers analyst Brian Johnson in Chicago said in an interview. Ford Credit and GMAC LLC, the General Motors Corp. lender, might retrench on leasing, not quit outright, he said.

Automakers have long used their finance units to help boost sales through lower payments. The shift on leases at Chrysler, the third-largest U.S. automaker, comes as the domestic market slides toward what may be its worst year since 1993.

Chrysler's 22 percent U.S. sales decline through June 30 was the most of any major automaker and more than twice the 10 percent industrywide total. Leases account for about 20 percent of the vehicles driven off dealer lots, according to Auburn Hills, Michigan-based Chrysler.

`Profoundly Hurts'

``It profoundly hurts me,'' said Alan Helfman, owner of Helfman River Oaks Chrysler Jeep in Houston. ``I was doing 20 to 30 leases a month.''

Chrysler and Chrysler Financial are owned by New York-based private-equity firm Cerberus Capital Management LP, and operate independently within holding company Chrysler Holdings LLC. Cerberus also owns a majority stake in GMAC.

Chrysler will begin offering 72-month, no-interest loans on its Jeep Cherokee and Commander, Chrysler Aspen and Dodge Durango SUVs. Steve Landry, executive vice president of sales for North America, said the Cherokee is Chrysler's most commonly leased vehicle.

Borrowing costs to finance leases are now so high that subsidizing lease offerings no longer makes sense, Thomas Gilman, chairman of Chrysler Financial, said on the conference call. For consumers, monthly lease payments are now similar to those under a traditionally financed purchase, Press said.

`Pressures on Leasing'

``The pressures on leasing are going to follow everybody,'' Press said. ``There are a lot of financial requirements for leasing to not make it as attractive as it had been.''

GMAC spokeswoman Gina Proia didn't immediately return a voice-mail message seeking comment. ``Our business plan always includes a certain amount of leasing to support sales,'' Ford Motor Credit spokeswoman Brenda Hines said in an interview.

Chrysler's move ``shows how severe the deterioration in residual value is,'' said Pete Hastings, a fixed-income analyst at Morgan Keegan & Co. in Memphis, Tennessee. ``To pull back completely on leases means they think prices are going to go down probably through next year.''

U.S. used-vehicle prices fell in June for an eighth straight month, dragged lower by a 28 percent decline in large SUVs, according to Atlanta-based Manheim Consulting.

``Companies are saying, `It's not worth it in this environment to remain active,''' said Scott Valentin, a Friedman Billings Ramsey Group Inc. analyst who follows consumer credit companies.

To contact the reporter on this story: Mike Ramsey in Southfield, Michigan, at mramsey6bloomberg.net

Last Updated: July 25, 2008 18:04 EDT

http://www.bloomberg.com/apps/news?pid=20601087&sid=aVo5HHiSxehg&refer=worldwide

Edited by crash2006

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Chrysler in talks with Tata and Fiat: sources

DETROIT (Reuters) - Chrysler is in talks to lease U.S. production capacity and share retail distribution with Fiat SpA, allowing the Italian automaker to return the U.S. market for the first time in 25 years, people briefed on the talks said on Wednesday.

http://www.reuters.com/article/ousiv/idUSN3015520080730

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Car leasing was something that auto makers got into because they were having difficulty selling cars. What they did was effectively give consumers the money they needed to buy the car. They then went out and securitised the car loans.

I have always felt that the auto leaisng car loan business wuld be the next credit area to implode. It essesntially depended on the leasing company taking a massive bet on the credit worthiness of millions of consumers and another massive bet on the value of millions of used cars.

Now the economic downtirn is here neither the creditworthiness of consumers or the value of used cars is standng up.

This is something I've mentioned before and am awaiting with glee. I shall be ordering an extra-large serving of schadenfruede when it happens - No one gets made homeless, no one should lose their job (apart from maybe BMW/Audi salesmen) and normal people will be driving fords and vauxhalls again.

This should see a reduction in the numbers 320ds and 520ds driving like twunts

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Very odd! I thought the motor companies made more out of car financing,

than actually making vehicles!

Still, if the asset is unsaleable after 3 years, when the company takes it back,

then it's not much of an "asset"!

Expect leasing costs to rise, then!

Older cars are getting to be very cheap now, due to new taxes, and the current fuel price.

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Car leasing has always seemed like a dangerous sport to me.

You've got a car which, new, is worth £15,000. You effectively take a gamble that, in three years' time, it'll be worth £10,000. You set the lease price on the £5,000 difference and make money off the interest on that.

The car comes back to you three years later. If you sell it for £10,000, great. If the market is bottoming out and incomes are squeezed, you might get £8,000, producing a large loss even against the profit on the interest.

Now, imagine that over 1 million vehicles in the UK each year. That's one hell of a gamble.

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Car leasing was something that auto makers got into because they were having difficulty selling cars. What they did was effectively give consumers the money they needed to buy the car. They then went out and securitised the car loans.

I have always felt that the auto leaisng car loan business wuld be the next credit area to implode. It essesntially depended on the leasing company taking a massive bet on the credit worthiness of millions of consumers and another massive bet on the value of millions of used cars.

Now the economic downtirn is here neither the creditworthiness of consumers or the value of used cars is standng up.

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I've always preferred the option of buying an old car for a grand in cash, running it for a year, scrapping it, and then buying another.

3 years ago you had to pay the scrap man to take a car away. Now he'll give you £150 cash for almost anything!

You can get a decent car for a grand these days.

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This is something I've mentioned before and am awaiting with glee. I shall be ordering an extra-large serving of schadenfruede when it happens - No one gets made homeless, no one should lose their job (apart from maybe BMW/Audi salesmen) and normal people will be driving fords and vauxhalls again.

This should see a reduction in the numbers 320ds and 520ds driving like twunts

The whole reason there are so many BMW lease cars, is they have a better

residual value after 3 years, than a Fiat, for instance! Lease companies love them.

Salesmen love them. They feel a bit "special"!

Don't know why though? Every second car round here is a BMW.

I agree, a car leasing crash will ensue. It's the second most expensive thing we buy,

and people will be cutting back

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I've always preferred the option of buying an old car for a grand in cash, running it for a year, scrapping it, and then buying another.

3 years ago you had to pay the scrap man to take a car away. Now he'll give you £150 cash for almost anything!

You can get a decent car for a grand these days.

Driving it for a year? We have kept our N reg ford escort (£1500) going for 6! Previous 205 kept for 12. Buy dor a grand and drive it til it cannot be driven any more is my preference

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A bit unsettling

GE and some of these car companies were making more money out of finance than out of production. If their borrowing is now their worse nightmare what happens next?

GE were doing the no interest no repayments for a year lending for consumer electronics and what not so it seems that jet engines and washing machines was more or less a hobby or something?

You get the impression that somebody really really did sit down one day and say 'you know we really can just consume and consume and deficits really really do not matter. Come on over and we will show you are latest modelling.'

Every now and then i imagine i am running around screaming with terror. Then i imagine that i was not actually doing that. Then i get really scared and begin pacing around...........

Maybe i need to write music or something and do drugs?

Deficits dont matter!

We aint going in the crapper!

Yeah Baby lets just carry on spending!

Yeah live now and just stop pretending!

Aint no need to worry!

Aint no need to be sorry!

Just bring it on baby!

Party like its 1999!

Yeah!! Get down!!! Get on up!!

No wonder most of the kids are all going crazy and feel hopeless the rest of us are out of touch with reality

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I saw a rather unusual advert from a high end 4 x 4 manufacturer the other day. I cannot remember whther it was Land Rover Discovery or Range Rover but the deal was as follows:

The customers buys the car now and pays 50%

In two years time they have thright to pay the other 50% or simply hand the car back.

I have no interest in buying a car but it did strike me that this deal was effectively shifting all of the leasing risk in the terminal value of the used car on to the consumer.

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I've always preferred the option of buying an old car for a grand in cash, running it for a year, scrapping it, and then buying another.

3 years ago you had to pay the scrap man to take a car away. Now he'll give you £150 cash for almost anything!

You can get a decent car for a grand these days.

Decent yes Sexy no

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Driving it for a year? We have kept our N reg ford escort (£1500) going for 6! Previous 205 kept for 12. Buy dor a grand and drive it til it cannot be driven any more is my preference

Yep, that's pretty much my idea too. Buy a car with a FSH and lowish mileage for 1000 and drive it for around 5 years. I'm on my third year with a Rover and have only had to replace pads and a couple of bushes. The way things are going, 1k will buy a lot of car in 2 years time! I remember my old man saying that by 1933 you buy a decent car for just about nothing but no one bought because they were simply too expensive to run. I didn't quite understand at the time he told me this but I'm beggining to understand now.

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I posted on here the other day about the sudden and severe gap in what my leased Audi was worth 7 months ago and what its worth now. This £16k vehichle was valued at £9084 16 months after being registered new on an 07 plate.

I'm paying £249 and its going back in 8 months time. I dont think my lease company saw this coming.

carpricecrash.co.uk :unsure:

I saw a post on a Toyota forum this week where a chap who had bought a RAV4 new for nearly 20K back in January had just tried to flog it back to the dealer and they had offered him 12K for it.

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I posted on here the other day about the sudden and severe gap in what my leased Audi was worth 7 months ago and what its worth now. This £16k vehichle was valued at £9084 16 months after being registered new on an 07 plate.

I'm paying £249 and its going back in 8 months time. I dont think my lease company saw this coming.

carpricecrash.co.uk :unsure:

Very true, shindigger. My brother has a Honda on lease and its value has also plummeted.

It takes balls of steel and certainly a sense of adventure to want to underwrite car leasing deals.

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Car leasing has always seemed like a dangerous sport to me.

You've got a car which, new, is worth £15,000. You effectively take a gamble that, in three years' time, it'll be worth £10,000. You set the lease price on the £5,000 difference and make money off the interest on that.

The car comes back to you three years later. If you sell it for £10,000, great. If the market is bottoming out and incomes are squeezed, you might get £8,000, producing a large loss even against the profit on the interest.

Now, imagine that over 1 million vehicles in the UK each year. That's one hell of a gamble.

I posted on here the other day about the sudden and severe gap in what my leased Audi was worth 7 months ago and what its worth now. This £16k vehichle was valued at £9084 16 months after being registered new on an 07 plate.

I'm paying £249 and its going back in 8 months time. I dont think my lease company saw this coming.

carpricecrash.co.uk :unsure:

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You can get very good old cars dirt cheap now. If it wasn't for the miles I drive (so want a very economical car) I'd be spoilt for choice!

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What might be very interesting might be what happens to the BMW bussines model. Aparrently the price to the lease operators is much lower than the showroom price to the normal buyer and any worthwhile discounts are frowned upon. The resale price is thus based on near enough list so enhancing the residual for the leasing company which in turn allows low looking leasing costs. So if resale prices go down, as they will, leasing costs will rise sharply. I suspect there will be a lot more people in Fords etc. then Meamres in the near future.

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