GMAC is out of leasing — at least for now

GMAC Financial Services, the nation's largest auto lessor as recently as midyear, virtually has stopped writing leases in the United States.

In September, leases accounted for less than 2 percent of General Motors' U.S. new-vehicle sales, according to J.D. Power and Associates. A year earlier, Power noted, GM's leasing rate was 16.8 percent.

Automakers and dealers use leases as sales tools for customers who seek lower monthly payments and a way to cover negative equity in their current vehicles. But the credit crisis forced Chrysler Financial to exit the leasing business this summer, and other lenders have cut back sharply on leasing.

Leases accounted for 12.3 percent of all new-vehicle sales in September, Power reported. That's down from 18.0 percent a year earlier.

Last week, Mark LaNeve, GM's vice president of North American sales, conceded that GM did "hardly any leasing in September." During a conference call reporting monthly sales, LaNeve said GM wants GMAC to put more money into leasing.

GMAC spokesman Mike Stoller said the company's policy is not permanent. "At such a point as leasing makes sense, you will see a return to leasing," he said.

But GM COO Fritz Henderson appears pessimistic about GMAC's possible return to leasing. Last week, he said he expects GM's lease rate to remain "minimal" throughout the fall.

"We've really reverted our marketing program to cash," Henderson said at the Paris auto show. "For the foreseeable future, that's where we're going to focus our attention."

Lease less
Leases as percentage of new-vehicle sales for GM brands
BRANDLease Rate (%) Sept. 08*Lease Rate (%) Sept. '07
Cadillac8.143.6
Saab7.450
Hummer5.345.3
Saturn4.825
Pontiac2.226.5
Buick1.820.1
Chevrolet0.711.2
GMC0.613.6
Industry12.318
*Sept. 1-28
Source: Power Information Network, J.D. Power and Associates

Wall Street turmoil

GM cannot dictate GMAC's leasing policy. Last year, GM sold a controlling 51 percent share of GMAC to Cerberus Capital Management.

Amid Wall Street's meltdown, GM and GMAC executives say, the captive finance company has been finding it nearly impossible to raise money by selling securities backed by bundles of auto leases.

Financial institutions "are not buying the paper," said Kim Kosak, Chevrolet's general director of advertising and sales promotion. "That's a big concern, particularly with Northeast dealers."

Congress' $700 billion Wall Street bailout may ease the credit crunch, since it empowers the Treasury Department to purchase auto loans. But until credit markets improve, LaNeve warned, "getting leases is like squeezing blood out of a turnip."

Dealers confirm that GMAC stopped subsidizing leases in August, especially for cars and trucks with low residual values. A residual value is a prediction of what a vehicle will be worth at the end of a lease, usually 36 months.

A vehicle with a low residual value requires the customer to make higher monthly lease payments, unless the automaker subsidizes the lease. That practice, called subventing, has been extraordinarily costly for automakers.

Lenders such as GMAC lost huge sums this year when the end-of-lease residual values of many large trucks proved to be much lower than original estimates.

John McEleney, who owns two GM dealerships in Iowa, said the virtual elimination of subvented leases has added $70 to $90 a month to the retail cost of leases.

"That's driven people away from leasing," said McEleney, who will become chairman of the National Automobile Dealers Association next year.

Amid the near-freeze on leasing, GM new-vehicle sales last month dropped 15.6 percent from September 2007 — a smaller decline than its largest competitors. LaNeve cited GM's employee pricing incentive program for the company's relative sales success.

Dethroned

Through mid-2008, GMAC was the largest U.S. lessor of new and used vehicles, with 13.0 percent of the lease market, according to Experian Automotive's AutoCount. GMAC has fallen to second place among U.S. auto lenders overall, trailing Toyota Financial Services, Experian said.

Henderson said GM's U.S. leasing now "is focused primarily on premium vehicles." But Cadillac was not immune from the downturn: Last month's lease rate for Cadillac was 8.1 percent, down from 43.6 percent in September 2007, J.D. Power reported.

Chrysler Financial, which is owned by Cerberus, formally stopped U.S. retail leasing Aug. 1. Last month, Chrysler LLC's lease rate was less than 2 percent.

Ilya Shnayder, corporate finance director of International Cars Ltd., a dealership group in Danvers, Mass., that sells Chevrolet and Saturn vehicles, said GMAC has not announced an end of leasing "because it would have adverse dealer reaction. But for all intents and purposes, they are out of leasing."

Many consumers still want to lease vehicles, said John Blair, CEO of Automotive Lease Guide, which estimates residual values for the industry. But profits on leases have fallen so low, Blair said, that lenders such as GMAC "just can't do it."

Donna Harris, Amy Wilson and Laura Clark Geist contributed to this report

You can reach Jesse Snyder at jsnyder@crain.com

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