Just after General Motors announced the demise of Oldsmobile, managers at Carolina Auto Auction in Anderson, S.C., began wondering how prices would be affected on the auction line.
'It's too early to tell what the effect will be, but we're waiting for it,' said Tommy Rogers, the independent auction's business manager.
Although it's early, experts predict General Motors Acceptance Corp., GM's lending arm, will have to accept more risk if GM wants to support Oldsmobile sales. Gus Buenz, Oldsmobile's spokesman, said the division is conducting research to see how much financial support will be needed.
The financial ripple of the Oldsmobile decision is likely to move across the industry, according to observers:
Auction houses are likely to see used-car bidding dip on Oldsmobile vehicles if consumers perceive that the brand is being abandoned. Bidding also may be depressed as Olds retailers begin cutting back on inventories in preparation for the phase-out.
Retailers may find themselves in a bind as noncaptive finance companies retreat from approving new Oldsmobiles business - a development that could force up finance costs on Oldsmobiles. That would effectively make the brand's products less competitive in its final hours.
GMAC will have to step in and shoulder more risk in approving Oldsmobile paper.
'GMAC is going to take a hit,' predicts Devon Cohen, group vice president for automotive at Tradeout.com, an online clearinghouse of merchandise, equipment and used autos. 'The biggest risk at the moment is to the banks. Anyone who is holding Oldsmobile paper right now just got burned.'
Cohen estimated that the typical auto lease gives a finance company $600 to $700 in profit over a three-year period. But a drop in values at the end of the lease, when it is time for the finance company to dispose of the auto, would erode those profits.
Onus on GMAC
Stuart Angert, co-CEO of Remarketing Services of America Inc. in Amherst, N.Y., doesn't believe that Oldsmobile residuals will drop precipitously. 'That damage has already been done,' Angert said. 'Over the past several years of falling Oldsmobile sales, we've already seen the residuals gradually fall.'
But he agrees that noncaptive lenders are going to react to the GM decision by becoming more conservative about Oldsmobile business.
'The onus is really going to fall on GMAC now,' he said. 'GMAC is going to have to step in and keep the business going.'