Automotive News F&I Special Sections of 2008 - (Page AUG32) 32 • AUGUST 11, 2008 finance & insurance GMAC spiffs’ aim: Turn leases into sales Arlena Sawyers asawyers@crain.com Lease to buy GMAC is giving selected lease customers the opportunity to buy their vehicles at a discount. The program began last month in Ohio and Pennsylvania and is set to extend nationwide. Customers’ leases must be scheduled to expire within 61 to 90 days. GMAC sets the purchase price based on mileage; price is nonnegotiable. GM dealerships get $750 for each sale handled under the program. A new 2008 Chevrolet Tahoe large SUV will be worth 31.7 percent of its sticker price in three years, Automotive Lease Guide estimates. second-quarter charge because of residual-value losses. For example, Automotive Lease Guide estimates that a new 2008 Chevrolet Tahoe large SUV will be worth 31.7 percent of its sticker price in three years. The guide, which sets residual values for the industry, previously assigned a new 2007 Tahoe a residual of 42.1 percent. GMAC is aiming the new purchase incentives at selected customers whose leases are scheduled to end in two to three months. According to the memo to dealers, GMAC is contacting eligible lease customers by telephone. GMAC bases the purchase price it offers for a leased vehicle on its mileage. The company waives remaining lease payments and refunds the security deposit. GMAC sends the customer a letter specifying the nonnegotiable price and deadline to make the deal. The customer takes the letter to the dealership to complete the sale. “The lessee may not purchase the vehicle directly from GMAC,” the memo says. Rodger McClain, general manager of a multibrand GM dealership in Lima, Ohio, says the new program puts GMAC between him and his customers. He says none of his lease customers has asked about the special purchase program. But McClain concedes that the plan makes good business sense for GMAC, given its big losses on offlease trucks. “It will help them immensely,” McClain says. “When people don’t buy their lease vehicles and GMAC takes them to the auction, sometimes they lose $3,000 and $4,000. “I understand where they are coming from. They are trying to survive, like we are.” c GMAC Financial Services is offering auto lease customers new incentives to buy the vehicles rather than return them when their leases end. The program is an effort by General Motors’ captive finance company to cut the huge losses it is taking on vehicles that come off lease. In recent months, sales and prices of large used trucks have plunged because of rapidly rising gasoline prices. As a result, end-of-lease pickups and SUVs are worth much less than their predicted residual values when their leases began, usually 36 months earlier. Under the program, GM dealers get $750 for each car or truck they sell. But some dealers complain that GMAC is poaching their customers. GMAC launched a test program last month in Pennsylvania and Ohio. An “aggressive rollout … to quickly include all remaining states” will follow, according to an undated GMAC memo sent to dealers and obtained by Automotive News. GMAC spokesman Mike Stoller confirmed the program but declined to discuss details. ‘Special’ prices The “special” price will not exceed the fixed purchase price listed in the original lease contract. The new price includes past-due payments and charges. Leasing losses Last month, GMAC reported $716 million in second-quarter writedowns related to its North American lease business. GM took a $2.0 billion HSBC’s exit further shrinks subprime finance ranks Donna Harris dharris@crain.com Auto dealers’ options for getting their riskier customers financed continue to shrink, as another major vehicle lender has left the business. HSBC Finance Corp. stopped writing auto loans Wednesday, Aug. 6. HSBC was among the largest lenders to subprime customers with credit problems, said Jack Tracey, executive director of the National Automotive Finance Association. The trade group serves the nonprime auto finance business. “HSBC’s departure leaves a hole for the dealer community that seeks to finance customers with less-thanperfect credit,” Tracey told Automo- National Automotive Finance Association’s Jack Tracey: Dealers have fewer options. tive News. “That leaves fewer options for dealers in an environment where other lenders who are left are tightening credit.” On Aug. 4, HSBC informed its 7,500 U.S. dealer customers of its departure from the auto finance business, spokeswoman Cindy Savio says. “The auto finance business has been under strategic review for some time,” Savio says. “Our exit from the business will allow HSBC Finance Corp. to focus on its core businesses — credit cards and mortgage lending.” HSBC, the consumer finance arm of British financial giant HSBC Holdings PLC, reported a $12.5 billion U.S. auto loan portfolio. In the first half of 2008, HSBC’s auto finance division made a $27 million profit. The company made auto loans through dealerships, as well as directly to consumers over the Internet and through branch offices. It does not offer auto leases, which have been under increasing pressure as values of large used trucks have plummeted in recent months. HSBC’s market share was just under 1 percent of U.S. auto loan volume in the first half of 2008, according to an analysis by Experian Automotive. Last year, HSBC ranked No. 20 in auto loan volume, down from No. 15 in 2005 and 2006, Experian says. HSBC entered the auto finance business in 2003 when it acquired Household International, Savio says. Household had written auto loans since 1999. Another large subprime auto lender, Triad Financial Corp., has stopped making loans through dealers. The company worked with nearly 5,000 U.S. dealerships. c http://www.cso.com http://www.cso.com
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