Chrysler dealers bank on used-car sales, leasing providers
Chrysler LLC’s product slowdown coupled with its financial arm’s
leasing exit is slowing dealers’ sales. Chrysler reported that its
August U.S. sales figure of 110,235 units was 34 per cent lower
than the same period last year. To try to stay afloat, dealers are
looking to other financiers for leasing offerings, relying on
incentives or relying on used-car sales.
“There are huge sales that we’re not having [since Chrysler
Financial’s exit from leasing],” said Jack McInerney, finance
manager at Northland Chrysler Jeep Dodge, a dealership in Michigan
in which leasing accounts for 95 per cent of the business. He is
“not optimistic at all” about business getting better, but does
expect a rise in the number of consumers purchasing used cars.
When Chrysler Financial exited the leasing arena, the
Northland’s sales suffered, a problem further compounded by the
elimination of some Chrysler products and the delay of some new
Chrysler also issued several incentives in September to offset
any ill effects from the leasing pullback, including such allures
as the “Shop ‘til You Drive Sales Event,” which offers up to 40 per
cent off list price on select vehicles, and 0% APR for 72 months on
the 2008 Dodge Ram, Dodge Durango, Chrysler Aspen, Jeep Grand
Cherokee, and Jeep Commander.
The initiatives have yet to help Northland. “We can only go as
far as Chrysler does,” McInerney said. “Whatever rebates they have,
we have. It’s just difficult with the market out there.”
Some dealers are turning to additional financial sources to keep
leasing options available, with an aim to make the market less
Although the majority of South Point Chrysler Dodge’s customers
purchase automobiles, the Austin, Texas-based dealership turned to
U.S. Bank to be its leasing provider after Chrysler Financial
stepped out, said the dealership’s financial manager, Adan
Sales are not booming at South Point. Arredondo doesn’t expect
sales to pick up for at least another six months. In the meantime,
Arredondo said, incentives are helping sales. “Without them, half
of the deals we do wouldn’t happen,” he said.
Speedway Chrysler Dodge Jeep is also betting on incentives to
keep sales going. Incentives have “helped us put people into more
cars with reduced prices,” said Tim James, the dealership’s
Speedway looked to other financiers for leasing options when
Chrysler’s financial arm stepped out, but couldn’t find any. Many
lessors quit leasing when Chrysler Financial did, James said. As a
result, more people are buying used cars. For every new car the
dealership sells, it sells three used ones. However, he expects the
market to improve.
“Nothing stays the same forever,” he said. “I think we have seen
the worst of the worst.” Chrysler officials declined to
Market flux opens doors for independent lessors
The playing field has started to even out in the leasing sector,
as the captives that dominated the space for the past few decades
curtail originations amid residual losses.
The pullback by the likes of Chrysler Financial, GMAC and BMW
Financial Services has opened the door for independent firms – such
as Putnam Leasing – to increase business.
Putnam’s president Steven Posner says: “We’re getting calls from
dealers saying, ‘Help us.’”
Historically, Putnam specialised in leasing classic and
exotic cars, but the current market upheaval “gives us the
opportunity to lease different kinds of cars that we couldn’t be
competitive on for many, many years,” he adds.
The average value of a vehicle in Putnam’s lease portfolio is
$150,000 (£87,000), with the average term four to five years. “We
offer open-end leases, which means that the lessee guarantees the
residual, and the leasing company retains title,” Posner explains.
He predicts a rollercoaster ride for lessors in coming months. “Now
lessors are going to be very conservative on closed-end leases –
there will be no more cheap deals, no more $500-a-month deals for
cars worth $50,000.” But the number of lessees cancelling a lease
before the end of its term will decrease from its current level of
60 per cent, he believes. “To break a lease is expensive. People
are going to stay in their leases.”