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Old 11-10-2006, 09:35 AM   #1
NYCshopper
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Default Chrysler tries risky lease plan

Chrysler tries risky lease plan

http://www.detnews.com/apps/pbcs.dll...TO01/611100378

Quote:
Chrysler tries risky lease plan

Strategy could haunt automaker by hurting vehicles' resale value

DaimlerChrysler AG's Chrysler Group is leasing 2006 model year vehicles at a drastically higher rate than crosstown rivals General Motors Corp. and Ford Motor Co. as it works to unload a glut of new cars and trucks.

Lease deals can help automakers boost sales because they typically offer lower monthly payments.

Dealers say Chrysler is making lease deals on 2006 models even more attractive by lowering lease interest rates, relaxing credit requirements and raising vehicles' residual values.

It's good news for car buyers who can lease a loaded Jeep Commander full-size SUV at some dealerships for less than $200 a month. But analysts say it could prove a risky strategy for Chrysler, particularly as 2007 models are arriving at dealerships.

To make payments attractive, automakers typically have to subsidize leases with precious marketing dollars. Moreover, Chrysler could take a hit on the back end when it sells vehicles coming off lease -- especially if it overestimated their residual, or resale, value when the lease was calculated.

"They basically want to use any tool to move inventory, but there's so much pressure on them to move the units that there's a tendency to want to raise the residual, which will lower the monthly payment," said Tom Libby of J.D. Power's Power Information Network, which tracks vehicle sales. "The long-term problem with that is you could then have a loss on the unit when it comes back."

In October, leases accounted for 26.7 percent of Chrysler retail transactions on 2006 models, up from 22.8 percent in September and 22.4 percent in October 2005, according to Power Information Network data.

By contrast, leases accounted for less than 1 percent of GM transactions in October and less than 4 percent of Ford's. The lease rate for the entire industry in October for 2006 models was 13 percent.

Chrysler declined to comment on whether it is aggressively pushing customers toward leases. "Leasing is something that we offer to all customers," said spokesman Kevin McCormick. "We use it to attract customers who are looking for that type of option."

Chuck Fortinberry, owner of Clarkston Chrysler Jeep, said the automaker is generating more lease business than GM and Ford for one reason: "Better deals," he said. "It's that simple."

Chrysler typically will allow customers the flexibility to apply rebate cash on either the purchase or the lease of a new car, Fortinberry said. In some cases, Chrysler will add a $1,000 bonus for returning lessees to sweeten the pot.

"Chrysler has been aggressive in the lease market to keep the payments low," Fortinberry said. Leases account for about 90 percent of Fortinberry's business, in part because Metro Detroit is a lease-heavy market due to employee discounts and tax advantages.

Recently, Fortinberry was leasing a $32,000 Jeep Commander for 27 months for $179 a month. The deal required an initial payment of $1,995. Chrysler employees' monthly payments could be as low as $118.

The deal was possible because up to $8,000 in incentives applied toward the lease. Fortinberry quickly sold all his Commanders.

Likewise, at Mike Riehl's Roseville Chrysler-Jeep, a customer can lease a 2006 Commander for 27 months at a monthly payment of $169. That compares to $483 a month for five years with $1,877 down to buy the same SUV.

Fortinberry said Chrysler minimizes its risk by staggering when buyers come off lease to avoid flooding the used market. He also said Chrysler is very good at identifying where to sell off-lease vehicles at auction to get the best price.

"They have developed a very sophisticated leasing system to minimize the loss of value down the road," Fortinberry said. "It's no longer just a wild guess about what these vehicles will be worth coming off lease."

Some marketers say that cut-rate leasing has a less negative impact on future value than sales rebates, said Jack Nerad, executive editorial director for Kelley Blue Book, a publisher of used-vehicle prices.

"By subsidizing leases, you can incentivize that transaction," he said. But "it's not as obvious to the world that that is what's happening."

This year, Chrysler's retail sales are down 6.8 percent through October. The automaker has an 80-day supply of cars and trucks.

Chrysler has drastically cut production for the rest of the year as it tries to whittle vehicle stocks. The glut of unsold models was largely responsible for the automaker's $1.5 billion third-quarter loss. Chrysler is counting on the launch of 10 new cars and trucks this year, the bulk of which are now arriving in showrooms, to provide a sales boost.

Paul Taylor, chief economist for the National Automobile Dealers Association, said Chrysler isn't the only automaker ratcheting up lease deals for the sake of reducing stock. Lease transactions in the auto industry have climbed in tandem with higher interest rates and slower gains in personal income that move more consumers from the new-vehicle market into leasing, Taylor said.

Chrysler dealers say leasing deals are a valuable sales tool.

"Dealerships have been asking for support from Chrysler and Chrysler financial and Chrysler has given it to us," said John Berry, sales manager at a Hollywood, Fla., dealership. "Now is the time to sell cars. We have excellent incentives for the consumer to take advantage of in lease programs so they can drive the car they want to drive and not the one that they can only afford."
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Old 11-10-2006, 09:40 AM   #2
BOY
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Originally Posted by NYCshopper View Post
Chrysler tries risky lease plan

http://www.detnews.com/apps/pbcs.dll...TO01/611100378
The deal was possible because up to $8,000 in incentives applied toward the lease. Fortinberry quickly sold all his Commanders.
$8000!?!?! Christ, DC is going to lose their shirts when these things come off lease.
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Old 11-10-2006, 09:56 AM   #3
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Originally Posted by BOY View Post
$8000!?!?! Christ, DC is going to lose their shirts when these things come off lease.
i got around $8500 off when i bought the saabaru.
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Old 11-10-2006, 10:29 AM   #4
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i got around $8500 off when i bought the saabaru.
And GM is the bastian of profit margins
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Old 11-10-2006, 11:51 PM   #5
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$8000!?!?! Christ, DC is going to lose their shirts when these things come off lease.
come to detroit and turn on the radio or tv. you will get bombarded with incentives from the big 3. although, DC does seem to be the worst offender.

recent memory recalls such incentives as "$8,000 off durango with available HEMI!" and "get employee pricing plus $4,000 cash back plus free gas on all 06 dodge rams!!"

it really is quite sad to watch.
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Old 11-13-2006, 01:18 AM   #6
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I heard an ad on the radio today for a local dealership advertising the "million dollar giveaway." 1,000 Dodge Rams, all with $10,000 off MSRP. Bleed, baby, bleed.
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Old 11-14-2006, 02:15 PM   #7
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I'm looking for a new tow vehicle... for only a couple hundred a month, it's pretty attractive vs owning.

--kC
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Old 11-14-2006, 02:23 PM   #8
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I am tempted to go see what i could do on a SRT-10 ram. I always thought having that truck would be fun
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