GMAC to stop offering lease incentive deals in Canada

[Sylvanfan]

We're_losing_our_shirts on leases!

We've had this topic discussed a fair bit of late and it looks like GM is going to be the first in Canada to try and push people towards buying their vehicles. Chrysler and Ford have both had some major problems too with people returning leased vehicles that no longer have any value due to the price of fuel these days. The domestic's are the most affected by this as they offered some pretty low lease rates on pick up trucks and SUV's which make up the back bone of their sales for a lot of years and now people are turning them back. I can only imagine that Ford and Chrysler will also follow suit in Canada.

[Claeren]

I don't think it is just fuel prices.

When the CDN dollar appreciated new vehicle prices eventually had to fall substantially to match American priced vehicles. Since that has happened over the last 3 years it is not a surprise that as all of those trucks that were once $45,000-new are now being returned and their comparable price is now $39,000-new that their used values have fallen by a similar margin (instead of going up slightly each year with inflation). I am sure their projects were waaaaaay off for residual values before even looking at the movement away from larger vehicles.



Claeren.

[Sylvanfan]

I agree that they're using fuel prices as an excuse, when it's only part of the equation. The currency issue is certainly having an effect that they never saw coming for sure.

But I think right now they know that they can't compete by manufacturing the vehicles in North America with the agreements they have with the Autoworkers Unions. They'll either try to lobby to have any imported vehicle tagged with much higher duties to make their prices look more competitive or they'll do like everyone else is, and move their manufacturing offshore to get their costs down.

[Bobblehead]

GM is already slashing jobs.

But it is interesting that some of the "offshore" companies are doing just fine with their NA assembly plants. The Civic, Ridgeline and Acura MDX are made in Alliston Ont, and although Ridgeline production is moving to the US, Honda is building a engine plant in Alliston.

And it is not a unionized plant.

[BlackArcher101]

Besides, why would GM want the vehicles back when they are having trouble selling them in the first place?

[DementedReality]

further evidence that leasing is heavily in favour of the consumer.

if it wasnt and was a money maker for the car maker, no chance they discontinue it.

[Sylvanfan]

Originally Posted by DementedReality

further evidence that leasing is heavily in favour of the consumer.

if it wasnt and was a money maker for the car maker, no chance they discontinue it.

It's not that their discontinuing leasing, it's that they're no longer going to offer any type of incentive deals to lease. If a lease rate is 8% and they're making you pay 75% of the vehicles value with that lease over that 3 year term....than it's probably going to steer a lot of people away from leasing. But for businesses and those who can write off a lease, they probably still opt for the lease. I'm not quite old enough to know how car buying was done in the 80's or the front half of the 90's, but I can't remember leases being competitive with purchase financing. Most people were buying their vehicles, and only business type people leased. Nowadays leasing is something that Joe Consumer does for his personal vehicle and I think the car companies are going to try and steer him back into buying.

I own one vehicle and lease the other in my family. The vehicle I own hardly ever gets driven, and at this point I consider it to have lost all value even though it's only 6 years old and only has 30,000 k on it. I have it, so I'll keep it and I don't use it that much, I can drive it for another 10 years easy and it won't bother me, I've accepted my role in society as a poor schmuck and no longer need a good vehicle to drive myself. But I had every intention of turning in the leased vehichle in two years and leasing another. By the time that two years is up...it's likely that leasing another vehicle won't be an option for me.

[DementedReality]

Originally Posted by Sylvanfan

....than it's probably going to steer a lot of people away from leasing. ...

fair points, its not always as simple as it seems BUT if leasing was good for them they wouldnt steer people away from it. this seems to me that it means the programs favoured the consumer. otherwise why would they steer people away from it now?

[Russic]

Interesting to see if other companies continue to offer leasing and if so, how that'll impact people buying gm vehicles. On the news last night they said 40% of gm's consumers lease.

[Sylvanfan]

Originally Posted by DementedReality

fair points, its not always as simple as it seems BUT if leasing was good for them they wouldnt steer people away from it. this seems to me that it means the programs favoured the consumer. otherwise why would they steer people away from it now?

Thats just it. It's not just a simple leasing versus buying issue. It was an issue of them offering great lease rates, and high enough residual values that leasing became a very good option for consumers. It looks like I'll be much further ahead having chose to lease my last vehicle versus having bought it. One of the biggest reasons was that when I ran all the scenarios and calculations...at worst..I stood to maybe be out $1000 over 4 years by leasing, and the upside was for me to be a lot further ahead. One of the reasons was that at the time, they had leasing incentives that were better than the purchase finance options. In a way they almost forced me to lease when I honestly hadn't even considered it. So really I don't feel sorry for these companies, they've done this to themselves. Now that I've done it this way...I'll never buy another new car again, unless some freak occurrance happens and I stop caring about the cost of things. Until than, it will be lease, or look for a decent used vehicle where I can work over the seller.

[Bobblehead]

Originally Posted by DementedReality

fair points, its not always as simple as it seems BUT if leasing was good for them they wouldnt steer people away from it. this seems to me that it means the programs favoured the consumer. otherwise why would they steer people away from it now?

Changing market conditions.

When things looked good, there were people buying new cars, used cars, and leasing cars. When things downturn, the leasing incentives make the market shift away from purchases, especially with credit becoming much tighter. The result would be the automakers with a glut of used vehicles they can't move. They probably already see people not buying out the vehicle at lease end.

By removing the incentives, they are attempting to balance the market. They will lose some business on the leasing side, but not as much as having a huge number of 2 year old vehicles sitting on car lots. At some point in time, the vehicles need to be sold to somebody.

So it may not be as much "The consumer was getting too good of a deal" as much as when leases expire the automakers having to tough time at that point.

[DementedReality]

Originally Posted by Sylvanfan

Thats just it. It's not just a simple leasing versus buying issue. It was an issue of them offering great lease rates, and high enough residual values that leasing became a very good option for consumers. It looks like I'll be much further ahead having chose to lease my last vehicle versus having bought it. One of the biggest reasons was that when I ran all the scenarios and calculations...at worst..I stood to maybe be out $1000 over 4 years by leasing, and the upside was for me to be a lot further ahead. One of the reasons was that at the time, they had leasing incentives that were better than the purchase finance options. In a way they almost forced me to lease when I honestly hadn't even considered it. So really I don't feel sorry for these companies, they've done this to themselves. Now that I've done it this way...I'll never buy another new car again, unless some freak occurrance happens and I stop caring about the cost of things. Until than, it will be lease, or look for a decent used vehicle where I can work over the seller.

you are right ... i have argued many times here that if you do the math, leasing almost always made more sense. now the car companies are seeing this and changes the playing field. many things have factored into why the landscape has changed, but that all supported why i was strongly in favour of leasing. your experiance above is another example.

i am sure if you searched, you will see where I was strongly challenged that owning was better than leasing. i disagreed and i think this decision by GM proves I was right.

[DementedReality]

Originally Posted by Bobblehead

So it may not be as much "The consumer was getting too good of a deal" as much as when leases expire the automakers having to tough time at that point.

thats inconsistent... if the automaker is having a tough time owning a 4 year old used car, wouldnt it suggest the consumer would as well?

therefore making leasing a good consumer choice, since you get to dump a 4 year old car right and the challenges onto another party? and in the meantime, the cost of using that car was greatly reduced in the first 4 years.

[MoneyGuy]

I know how lease rates are calculated. They're a poor financial option in most cases.

[DementedReality]

Originally Posted by MoneyGuy

I know how lease rates are calculated. They're a poor financial option in most cases.

i am interested in your analysis.

[MoneyGuy]

Originally Posted by DementedReality

i am interested in your analysis.

I could go into a lot more detail if you wish, but leases work like this. If you take a five-year lease and the new car costs, say, $40,000, they determine what the value will be after five years. If the five-year value is, say, $18,000 (not unreasonable) the payments are calculated as $40,000 - $18,000 = $22,000, so $22,000 divided by 60 months = $366.67 per month + interest and after five years you own nothing.

Bad financial move in most cases, IMO. I'd much rather buy a brand-new car (or used if you prefer) and own it for eight to 10 years. Yes, I know that I lose on depreciation, but over that many years it tends not to be a big deal. Lease and you pay the depreciation anyway, but you're paying the first years' depreciation when it's the greatest. If you don't want to buy new, then buy used. I buy new Toyotas because I can afford to, because they require little maintenance and if I take good care of them they last forever and hold their value better than the domestics.

[kevman]

Originally Posted by DementedReality

i am interested in your analysis.

and I'm interested in yours...

No really, I'm looking at buying a new truck soon and am curious what's the best way to go. Here's my super quick n dirty calculations.
2009 Toyota Tacoma Double Cab
Purchase Price : $39,300
Lease Rate: $575/month
Finance Rate: $900/month (these are both 48month terms for comparison)

Here’s the kicker, my current truck is 15 years old and I plan to own the new one for just as long. Just for 's n giggles I'm going to say at the end of my ownership the truck will have a value of $5000. Using an inflation number of 5% I came up with the following NPV's for the 3 scenarios.

Purchase NPC: $36,775 (Purchase of $39,300 in year one, credit of $5,000 in year 15)
Lease NPC: $75,200 (Lease rate continued for 15 years, yes I'm aware this would be multiple new trucks)
Finance NPC: $37,700 (Lease for 4 years, credit of $5,000 in year 15)

Now obviously this does not include repair costs and the intangible value of constantly owning a 'new' vehicle.

For curiosity if I use a 10% rate and start adding an annual repair cost of $1,500 per year starting in year 8 (after the warranty period I come up with the following:

Purchase: $42,100
Lease: $57,700
Finance: $40,400

In my opinion a 10% inflation rate is unrealistic but the $1,500 a year for maintenance might be valid.

Now I'm no economist, and I very well could have made errors in my quick calculations, but I fail to see how leasing is always the better option???

Finally, not everyone plans to own a vehicle for 15years which is a large factor of why owning is so beneficial to me but I'm simply trying to say your statement of "leasing is always better" is clearly wrong.

Vehicle ownership is expensive either way. The best thing you can do is buy a vehicle you like, yes purcahse or finance it, and hold on to it until the repair costs start to out weight the book value. As a bonus when your vehicle nears the end of it's life you can drop collision and save ever more money. The fact that you must carry full collision insurance on a leased vehicle should not be ignored.

[Sylvanfan]

Originally Posted by MoneyGuy

Bad financial move in most cases, IMO. I'd much rather buy a brand-new car (or used if you prefer) and own it for eight to 10 years. Yes, I know that I lose on depreciation, but over that many years it tends not to be a big deal. Lease and you pay the depreciation anyway, but you're paying the first years' depreciation when it's the greatest. If you don't want to buy new, then buy used. I buy new Toyotas because I can afford to, because they require little maintenance and if I take good care of them they last forever and hold their value better than the domestics.

Yeah, but having a vehicle for personal use is a bad financial move period. Realistically if we were all fiscally smart....we'd take public transit or walk everywhere, if we need a vehicle for a week, rent one, we'd be miles ahead. So really it becomes a lifestyle choice for people and some people like their vehicles and want a newer one every few years. Selling a used vehicle can be a real pain in the arse. Some people do have lifestyle changes come up and often that can force them to change up the vehicle they own.

[DementedReality]

Originally Posted by kevman

and I'm interested in yours...

No really, I'm looking at buying a new truck soon and am curious what's the best way to go. Here's my super quick n dirty calculations.
2009 Toyota Tacoma Double Cab
Purchase Price : $39,300
Lease Rate: $575/month
Finance Rate: $900/month (these are both 48month terms for comparison)

Here’s the kicker, my current truck is 15 years old and I plan to own the new one for just as long. Just for 's n giggles I'm going to say at the end of my ownership the truck will have a value of $5000. Using an inflation number of 5% I came up with the following NPV's for the 3 scenarios.

Purchase NPC: $36,775 (Purchase of $39,300 in year one, credit of $5,000 in year 15)
Lease NPC: $75,200 (Lease rate continued for 15 years, yes I'm aware this would be multiple new trucks)
Finance NPC: $37,700 (Lease for 4 years, credit of $5,000 in year 15)

Now obviously this does not include repair costs and the intangible value of constantly owning a 'new' vehicle.

For curiosity if I use a 10% rate and start adding an annual repair cost of $1,500 per year starting in year 8 (after the warranty period I come up with the following:

Purchase: $42,100
Lease: $57,700
Finance: $40,400

In my opinion a 10% inflation rate is unrealistic but the $1,500 a year for maintenance might be valid.

Now I'm no economist, and I very well could have made errors in my quick calculations, but I fail to see how leasing is always the better option???

Finally, not everyone plans to own a vehicle for 15years which is a large factor of why owning is so beneficial to me but I'm simply trying to say your statement of "leasing is always better" is clearly wrong.

Vehicle ownership is expensive either way. The best thing you can do is buy a vehicle you like, yes purcahse or finance it, and hold on to it until the repair costs start to out weight the book value. As a bonus when your vehicle nears the end of it's life you can drop collision and save ever more money. The fact that you must carry full collision insurance on a leased vehicle should not be ignored.

hopefully, i will have more time to expand on later ... but for now, did you calculate the value of the money saved in your payment (finance vs lease)

quickly, i see you have $325.00 in available capital to invest if you lease vs finance. after 4 years, the leaser has $15,600 invested plus interest (and growing) and the financer has an asset worth possibly more BUT depreciating, not liquid AND a liability as the warrenty has run out. One $3000.00 repair here and there is a hit.

[kevman]

Originally Posted by DementedReality

quickly, i see you have $325.00 in available capital to invest if you lease vs finance. after 4 years, the leaser has $15,600 invested plus interest (and growing) and the financer has an asset worth possibly more BUT depreciating, not liquid AND a liability as the warrenty has run out. One $3000.00 repair here and there is a hit.

I'm listening but still confused...Yes you have $15,600 invested but you have no car... For comparison a 4 year old Tacoma Double Cab is approx. $25,000+. For arguments sake we'll call this a wash but the leaser still has no car and isn't that the whole point of vehicle ownership? Now lets say you use that $20,000 lease another new truck. At the end of the next 4 years said investment will be pretty negligable where as the Tacoma should be worth approx. $15,000+. Now we can nickle and dime away that $15,000 to maintance and such, which in reality should be negligable after 8 years if it's a reliable vehicle. Anyways, again for arguments sake we'll say that after 8 years you have a vehicle worth ZERO dollars and after 8 years you have invested approximately the same into leasing a vehicle. However if you leased you still do not have a car...