Wagoner May Say GM Lost $2 Billion on Leases in SUV-Value Drop

Wagoner May Say GM Lost $2 Billion on Leases in SUV-Value Drop http://www.bloomberg.com/apps/news?pid 601087&sid=aSmnQ59Mz5C0&refer=home
July 31 (Bloomberg) -- Collapsing values of leased sport- utility
vehicles may force General Motors Corp. Chief Executive Officer Rick Wagoner to announce $2.3 billion in losses tomorrow on top of more than $1.4 billion that analysts have forecast.
Losses on so-called residual values of the vehicles may also prompt GMAC LLC, partly owned by GM, to ``significantly'' curtail leasing, said Lehman Brothers analyst Brian Johnson. Leasing accounts for 28 percent of the Detroit-based automaker's U.S. sales this year.
Chrysler LLC said it would stop leasing and Ford Motor Co.'s credit unit last week reported a $2.1 billion pretax writedown for losses on the transactions, twice what analysts forecast.
``It's surprising how quickly these values have fallen off a cliff,'' said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, which oversees $22 billion in assets, including GM bonds.
The automaker's leasing loss may exceed $1 billion, he said. ``Residual values are going to be the wild card for GM in the quarter.''
Exiting or limiting leasing may further thwart Wagoner's drive to end losses that totaled $54 billion since 2004. His strategy has been to cut manufacturing costs and shift GM's emphasis to cars from trucks, which make up about 60 percent of U.S. sales.
What It's Worth
The residual value is what a vehicle is worth when a customer returns it at the end of a lease. Gasoline that topped $4 a gallon this year has depressed demand for SUVs and other light trucks and reduced their value.
A possible $3 billion expense for residual-value shortfalls at GMAC may require a $2.3 billion expense for the carmaker on top of a $1.4 billion automotive loss, Johnson said.
``This is clearly one more headwind they have to fight,'' said Johnson, who advises holding and forecasts a $3.37-a-share loss. ``If they end leasing, it could end up being a 5 to 10 percent headwind to sales.''
Johnson had predicted on June 20 a $1.5 billion expense at GMAC, which reports second-quarter results today.
GM's net loss may end up being 50 percent bigger than Ford's $8.7 billion shortfall, he said.
Tomorrow GM may report a loss of $2.41 a share, excluding some costs, according to the average of 13 analysts surveyed by Bloomberg. On that basis, GM reported a profit of $1.3 billion, or $2.48 a share, for the year-earlier period and net income of $891 million, or $1.56 per diluted share.
The company won't discuss results for the latest quarter before they're released, spokeswoman Renee Rashid-Merem said.
Down 54%
GM fell 50 cents, or 4.2 percent, to $11.40 in New York Stock Exchange composite trading yesterday. The stock has lost 54 percent of its value this year.
The automaker said on July 15 it would have a ``significant'' second-quarter loss. It previously detailed $2 billion in pretax losses from production cutbacks resulting from labor disputes at plants and a supplier. GM also said it was ending the 25 cents-a-share quarterly dividend and trimming salaried payroll costs by 20 percent.
If GMAC, owned 49 percent by GM and 51 by Cerberus Capital Management LP, were to end leasing in the U.S. for General Motors vehicles, the carmaker would lose as many as 3 percent of its buyers, said Art Spinella, president of Bandon, Oregon-based CNW Market Research.
Chrysler, owned by Cerberus, the New York-based private- equity firm, said last week it would end leases today. Leases account for 22 percent of the company's sales, Spinella said.
Drop in Value
Almost 800,000 of the least fuel-efficient SUVs will be returned by buyers this year on two- or three-year leases. The models will each be worth about $6,100 less than GM, Ford and other automakers initially figured, said Spinella, who collects leasing data from dealers and banks.
That's a $4.9 billion shortfall for the industry, he said.
Ford this week said it would raise credit standards to make it harder to lease trucks, while GMAC said it would no longer offer subsidized leases in Canada, making them less attractive to buyers. Such deals may include inflated assumptions about residual values or below-market finance rates.
JPMorgan Chase & Co. also said it will end leases on Chrysler models today. Wells Fargo & Co. said it's halting the contracts for all models.
``This is pretty bad,'' Spinella said. ``So many different issues are converging right now for automakers.''
`Incentivized' Deals
GM North American sales chief Mark LaNeve told dealers in an e-mail yesterday that the automaker will offer ``incentivized'' U.S. auto leases at least through August. He didn't address future months and said leasing will continue to make up less of the automaker's sales in the future.
GMAC has been boosting U.S. auto-lending standards since the fourth quarter and hasn't announced any plans to change U.S. leases, spokeswoman Gina Proia said yesterday.
About 7 percent of prospective U.S. auto buyers wouldn't buy new vehicles if subsidized leases were unavailable, Spinella said. Leases account for 15 percent of all sales, he said.
Automotive Lease Guide, which banks use to set residual values, said it's lowering those for full-size SUVs about 8.7 percentage points, spokesman Fernando Ubeda said. An 8 percentage-point cut in residual values would add $100 to the monthly cost of a $45,000 vehicle, Deutsche Bank analyst Rod Lache wrote in a July 29 report.
Without attractive leases, it will cost consumers more to buy a car or truck. A well-appointed 2008 Chevrolet Tahoe would cost about $610 a month on a three-year lease compared with $795 per month if purchased with a typical five-year loan, said Bruce Litvin, sales manager at Joe Lunghamer Chevrolet in Waterford, Michigan.
``We're already selling less units in a given month than we used to,'' Litvin said in an interview. ``If you take away leases you could drive dealerships like ours to barely a trickle.''
--
Civis Romanus Sum

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It is a buyers market and because the prices are on the way down then those that are cosidering to buy a car are waiting for the prices to drop further and so it goes in a downwards spiral.
How long can it go on?
Eventually GM and all the dealers have lost so much that they run out of cash.
I guess the dealers will turn to other brands if they have not already done so. Brand loyalty is only valid as long as it pays the bills.
The car salesman is notorius for all kinds of tricks to get as much money out of the customer. Now when the customers hold the best cards and do not show the salesguy is getting desperate. They actually do not care what they sell or how.
It would be interesting to see how the dealer net is changing. How and if they are making money.
Jim Higgins skrev:

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In many ways it is interesting to compare GM and IBM. They were both giants making big machines. Then along came small machines and started taking over from the big machines. IBM played along in the small machine business for a while but could not make any profit there. GM has a bigger dependence on their machine than IBM did. IBM is now mostly in software and services and doing fairly well even if they are not ruling the market anymore. I have a hard time see GM follow in IBM:s footsteps and going in for good service and software. Whatever happens GM can not go on the way they have. If they do not change any time soon they will go belly up.
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Whatever happens GM can not go on the way they have. If they do not change any time soon they will go belly up.
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Now there's the statement of the year. Maybe you should look up Rick Wagoner and offer him the benefit of your great business insight.
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Rumor has it Rick's toast. Obviously, there's no way to officially confirm GM CEO Rick Wagoner's termination by GM's Board of Bystanders. But I want to state here, and for the record, that TTAC flagged Rick Wagoner as the wrong man at the wrong time in the wrong job from the moment we began our industry coverage. To those who say Wagoner made the best of a bad job, I call bullshit. The General Motors Death Watch and GM's financial record offer incontrovertible proof of Wagoner's ongoing managerial malfeasance. If nothing else, consider the fact that his administration relentlessly pursued a "we can cut our way to prosperity" philosophy. In this Wagoner has been deeply misguided. And misguiding. The CEO's failure to face the facts, both within GM and without, identify him for all time as a weak, ineffectual leader. Wagoner's lack of accountability both personally and professionally stands as an utter condemnation of GM's Board of Directors and America's "old school" corporate culture. Wagoner has pocketed over $100m and secured a bankruptcy-proof pension for himself and his heirs. His real legacy will be the psychological despair and economic misfortune of the one million-plus people whose livelihoods depend depended on General Motors' health and vitality. I'm sure Wagoner is a nice man, personally. I've never met a CEO of a major corporation who wasn't (and yes, I've met a few). But it's good riddance to bad rubbish
http://www.thetruthaboutcars.com/wild-ass-rumor-of-the-day-gm-ceo-rick-wagoner-resigns-next-week /
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wrote:

Rumor has it Rick's toast. Obviously, there's no way to officially confirm GM CEO Rick Wagoner's termination by GM's Board of Bystanders. But I want to state here, and for the record, that TTAC flagged Rick Wagoner as the wrong man at the wrong time in the wrong job from the moment we began our industry coverage. To those who say Wagoner made the best of a bad job, I call bullshit. The General Motors Death Watch and GM's financial record offer incontrovertible proof of Wagoner's ongoing managerial malfeasance. If nothing else, consider the fact that his administration relentlessly pursued a "we can cut our way to prosperity" philosophy. In this Wagoner has been deeply misguided. And misguiding. The CEO's failure to face the facts, both within GM and without, identify him for all time as a weak, ineffectual leader. Wagoner's lack of accountability both personally and professionally stands as an utter condemnation of GM's Board of Directors and America's "old school" corporate culture. Wagoner has pocketed over $100m and secured a bankruptcy-proof pension for himself and his heirs. His real legacy will be the psychological despair and economic misfortune of the one million-plus people whose livelihoods depend depended on General Motors' health and vitality. I'm sure Wagoner is a nice man, personally. I've never met a CEO of a major corporation who wasn't (and yes, I've met a few). But it's good riddance to bad rubbish
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You have an amazing ability to use a lot of words to say absolutely nothing.
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Mike Marlow wrote:

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Rick & The Board have succeeded in running GM into the grave. Clear enough?
--
Civis Romanus Sum

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wrote:

Rumor has it Rick's toast. Obviously, there's no way to officially confirm GM CEO Rick Wagoner's termination by GM's Board of Bystanders. But I want to state here, and for the record, that TTAC flagged Rick Wagoner as the wrong man at the wrong time in the wrong job from the moment we began our industry coverage. To those who say Wagoner made the best of a bad job, I call bullshit. The General Motors Death Watch and GM's financial record offer incontrovertible proof of Wagoner's ongoing managerial malfeasance. If nothing else, consider the fact that his administration relentlessly pursued a "we can cut our way to prosperity" philosophy. In this Wagoner has been deeply misguided. And misguiding. The CEO's failure to face the facts, both within GM and without, identify him for all time as a weak, ineffectual leader. Wagoner's lack of accountability both personally and professionally stands as an utter condemnation of GM's Board of Directors and America's "old school" corporate culture. Wagoner has pocketed over $100m and secured a bankruptcy-proof pension for himself and his heirs. His real legacy will be the psychological despair and economic misfortune of the one million-plus people whose livelihoods depend depended on General Motors' health and vitality. I'm sure Wagoner is a nice man, personally. I've never met a CEO of a major corporation who wasn't (and yes, I've met a few). But it's good riddance to bad rubbish
http://www.thetruthaboutcars.com/wild-ass-rumor-of-the-day-gm-ceo-rick-wagoner-resigns-next-week /
============================================================================== Those are good debating skills Gosi. If you can't think of a reply to someone, just COPY AND PASTE an ENTIRE article, instead of using your own brain. There isn't one single word in your entire post that you wrote. Grab a clue. Get a brain. You and Jimmy are perfect for each other, you truly are.
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Anybody who leased a gasoline powered SUV should take the buyback and convert the engine to propane. The much lower price of propane will offset the cost of adding the propane system to the vehicle and save on the cost of fuel dramatically. The propane conversion systems are available. I've seen a Crown Vic and a GMC 5500 truck get the system put on in two days. Then you can still drive the SUV's, on a greener, cheaper fuel system. (note: only available for fuel injected gasoline engines) Propane has come a long way since 1980.

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