Leasing Protects Consumers from Weakening Used-Car Market!
referenced at the end of this post sets the stage for a perfect scenario
to outline to undecided lease customers. As much as this describes
the situation in the U.S., we see evidence of the same events taking
place here in Canada.
While Ford (U.S.) and GM (U.S.) financial arms may need to write down
more than $1 BILLION dollars each due to expected pressure on
U.S. auto credit caused by a weakening used-car market, consumers
who leased their vehicles two, three or four years ago and are nearing
the end of their lease term will not be subjected to
accelerated depreciation values!
What's causing all this havoc? In part, blame the rising oil prices!
Higher fuel costs have led consumers toward fuel-efficient vehicles,
ultimately reducing sales in the large SUV and pick-up truck markets.
The traditional supply and demand principal comes into play
and once we have an oversupply of these vehicles that have become
slow movers, the prices start to fall (manufacturer's attempt to drive
sales with generous programs). It becomes a cascade affect
because once new vehicle prices drop in any vehicle category,
the used car prices of that model line follow the pattern.
In a nutshell, here are the cause and affect activites:
*Oil prices rise, increasing gasoline costs
*Consumers are reluctant to purchase vehicles that are fuel greedy
and lean towards fuel-efficient autos
*An oversupply develops in the marketplace placing pressure on auto prices
*As new vehicle prices fall or manufacturer's programs are sweetened,
used-car prices soften
*At lease end if your vehicle has a buy-out of say $15,000 but the
market value is less, you have no reason to pay $15,000 for a vehicle
that's worth less! If you don't take the brunt for this
aggressive depreciation in the value, someone has to and that someone
is the financial organization that lent you the money to purchase
the vehicle in the first place. When a customer returns the
keys of a vehicle affected by an accelerated depreciation value
to their originating dealership, the vehicle will land on the
doorstep of that financial institution and goes to auction for resell.
The auction can only get what the market will bear. And so, the
losses incurred by the finance organizations at lease end bleed
their profits and that's why Ford (U.S.) and GM (U.S.) financial arms
are facing potential massive write downs!
There is a silver lining though!
The pendulum always swings both ways. Where there is a crisis, an
opportunity will always rise from it. And so, those Canadian consumers
that leased their large SUV or pick-up truck during the past few years
(provided they were in a closed-end lease) are not responsible for these
price changes. When their lease expires they need only return their keys
to their originating dealer and walk away.
The Added Bonus!
If a consumer is driving a vehicle that has an enhanced value compared
to the predetermined lease end value, they still WIN! Now they can
purchase the vehicle outright and resell it, keeping any difference
over and above the buyout value plus taxes.
So, the next time you have a customer that hesitates or questions the
benefits of leasing, explain this real-life current day scenario and see if
that influences their decision at all!
For full details of the referenced article go to:
http://www.autonews.com
You will be required to register as a user, the basic subscription is FREE
and if you don't want to receive future news headlines, you can easily
unsubscribe. Enter "Ford, GM financial arms may incur writedowns"
in the Search box, the first article that shows up in the search list is the
one you are looking for dated June 20, 2008.
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