Comment by Ricky Beggs on March 26, 2010 at 12:01pm

The Black Book Editors, experienced in the new and used car market have great tools, a solid and long term data base and a true feel for vehicles in order to project realistic, solid residuals for leasing purposes. These are not projected in order to create a certain lease payment today but with zero $ equity and zero $ undwater at end of term. Now would be a great time to modify the way your leases are established. Black Book resiudals are projected and available as a % or as a $ amount.
Ricky Beggs

Comment by Adam M. Berger on March 26, 2010 at 12:25pm

Leasing is often manipulated to drive sales of vehicles, but back-to-basics leasing began in 2009 and unfortunately we are already retreating. It is unfortunate that simple/realistic leasing programs are not the norm in the retail market. Consumers should be driving cars they can afford and choosing to lease if it suits their financial goals, holding period, and stance on risk, NOT because the Civic is $159/month. This creates unrealistic expectations, setups potentially huge losses for termination said leases early and nearly guarantees losses for the captive finance/leasing company at lease-end. Leasing is being bastardized again, allowing manufacturers to avoid rebates and incentives that would be utilized in a normalized marketplace. Ricky is spot on and Black Book and other such guides are shooting for realistic residual values in the future with no notable gain or loss for the lessor and an accurate reflection of depreciation of a vehicle over time. Why must we decive reality -- it always comes back to bite? Adam Berger - out

Comment by Scott J McKim on March 26, 2010 at 2:38pm

These captive programs ruin the benefits of leasing for lessees and lessors alike. This is proven through multiple cycles going back more than 20 years. As a pioneer in the auto lease segment, we see the long term effects of these programs and that they ultimately led to our withdrawal from the segment and act as a barrier to re-entry. Take note, the Toyota and Honda models covered with these programs will see noticeable reductions in their future residual values--that is a shame as both makes have a history of stable residual values.

It is hard to imagine the other manufacturers not following with similar programs. I guess we will see 12+ million new cars sold this year after all.

Comment by Marcie Belles on March 26, 2010 at 2:43pm

Great comments, gentlemen. Thanks for your insights!

Comment by Jeff Cook on March 28, 2010 at 10:28am

It feels like Groundhog Day. Or is it deja vu all over again?

I'm in total agreement with the comments above. Subvented residuals and heavy front end incentives are nothing new. Yet they are proven to devalue the brand in the long run. Certainly they are not worth the short term gains in the oh-so-precious market share figures.

However, this is just another example of why Ruggles and I have been clamoring for independent banks to get back into late model pre-owned leasing.

Depreciation in years 2-5 is far less than in years 1-3. And when combined with realistic residuals, consumers get great value and banks are exposed to less residual risk.

Let the OEM's continue to hang themselves in the new car space. There is plenty of opportunity to go around in the late model used car space.

Comment by David Ruggles on March 28, 2010 at 9:33pm

AMEN Jeff! Why compete with those who have a death wish?

For those who like conspiracy theories, might the current administration, who owns part of GM and Chrysler, be thrilled if there was a return to "push marketing?" More employment, more overtime, and reopened plants might have some appeal in this world of 10% unemployment. Think of all the supplier jobs that would be filled if plants ramped up fueled by rebates, subventions, trunk money, etc.

Of course, all of this cheapens brands and ruins residuals. Will the discipline be maintained? Is their any history to support maintained discipline? I don't think so.

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