The Auto Finance Summit has added three senior executives ― from Santander Consumer USA, Consumer Portfolio Services, and CarFinance Capital ― to its roster of stellar speakers.
Andrew Kang, Santander’s director of capital markets, will participate in a panel discussion about liquidity and access to capital. The “Focus on Funding” session will cover topics like how to position your treasury strategy in the current rate environment and ideas on new sources of funding.
CPS President and CEO Charles Bradley Jr. and CarFinance President and CEO Jim Landy will join a panel called “Seizing the Nonprime Opportunity.” Panelists will examine ways to convert on business plans, discuss operational ideas to prevent risk-management breakdowns, and forecast new opportunities.
The trio will join a host of other speakers, including George Borst, president and chief executive of Toyota Financial Services, who will deliver the Keynote Address at this year’s Auto Finance Summit.
The 12th annual Auto Finance Summit will take place Oct. 22-24 at the Encore Las Vegas. The event is presented by Auto Finance News, AutoFinanceNews.net, and Royal Media Group and lead-sponsored by FIS.
Other speakers include:
• Ricky Beggs, managing editor for Black Book
• Michael Benoit, partner at Hudson Cook
• Mark Edelman, partner at McGlinchey Stafford
• Ken Rojc, partner at Nisen & Elliott
• Bill Strauss, senior economist at the Federal Reserve Bank of Chicago
To register, or for more information, visit www.AutoFinanceSummit.com.
We know OEMs became sold on leasing when Eustice Wolfington developed the “Half a Car” concept and sold it to Ford. Of course Ford marketed the concept as Red Carpet Lease and Customer Option Plan for their balloon program, which worked better in states where the sales tax was charged upfront. The idea of cycling customers more often through short term leases made a lot of sense. So did the depreciation credits Ford received on leases because the title stayed in the OEM’s name. These depreciation credits were a lot more helpful when the OEM was profitable, not so much during extended periods of loss. There is a limit to “loss carry forwards” although I don’t know all the details on the subject. I know the IRS disallowed substantial loss carry forwards for GM a few years ago and they posted a huge loss as a result.
After Ford’s initial success, all the OEMs sprang to get involved in short term leasing to realize the inherent advantages. Unfortunately, the domestic OEMs were also working at the same time to dismantle their own residuals through huge fleet and daily rental sales. The residual losses they took overwhelmed any depreciation credits and potential profts and caused them to become more conservative on residuals and extend the lease terms from 24 months to 30 and then 36 months. The Imports had much better results because their residuals stayed high because they managed their overall business better. The Domestics tried to keep things going but were double whammied by residual losses when fuel prices spiked and the Asset Backed Securities market dissolved almost overnight.
What I never understood was why independent banks would try to compete with the OEMs in new vehicle leasing when the domestic manufacturers seemingly had their own “death wish” going on. To me it made more sense for independent banks to engage in pre-owned leasing, but instead they tried to carve out a niche by offering new vehicle programs for longer terms. But the same factors caused most independent banks to bail out, although US Bank has stayed in the game. They will now handle leasing for GM in 5 northeastern states. There are many credit unions still actively engaged in leasing, but they are doing mostly balloon financing. They can be conservative with residuals these days and pick their spots.
The domestic OEMs look at the imports continued success with short term leasing and realize the market share they are losing to them. The subject is somewhat academic at this point as the domestic OEMs don’t have the money to get back in the leasing game agressively anyway. Limitations have been put on Chrysler and GM by the Task Force and provisions of the TALF money they have received. But the allure to get back in and protect market share is strong! We’ll see what happens!
Regarding the domestic OEMS: I have a lot of theories about why they have done what they have done. If an OEM puts a lease or balloon on the street with an over optimistic residual, they suspect they will take a “hit” at lease or balloon termination. But if they offer a big rebate today, the “hit” is known and comes off their books immediately. Why not “kick the can down the road” and subvent a short term residual that will cycle the customer more often than a rebate coupled with a long term finance contract? Goodness knows the domestic customer who takes a rebate and finances for 72 plus months will probably be too upside down after 3 years to trade, whereas the chances are much better to do business after 3 years with the lease customer who’s short term lease terminates.
Imagine you are the new brand manager of Pontiac a few years ago. You know you need to keep production going. You also know you are having to live with the residual “hits” for vehicles put on the street by your predecessor. You will have to put at least as many “deferred loss” (short term residual based deals with overly optimistic lease end value) deals on the books now to offset the losses your division is taking from the previous regime’s deals. But when GMAC/Cerberus hit the wall, the losses piled up with no current offset.
The short term leases OEMs advertise always involve trade equity and/or cash down. One a short term lease or balloon, each $1000. of capital reduction lowers the monthly payment by $45. – $50. The same $1000. down only lowers a long term finance payment about $20. Selling vehicles on 72 plus finance contracts is a losing strategy for the domestics in the face of their import competitors using their higher resale values to do shorter term leases and balloons and cycling buyers more often. This translates directly into incremental market share. Its all about resale value which is driven not only by quality perception but by whether or not an OEM floods the market with fleet sales.
And now I see Ford is pushing the new Taurus as a police cruiser. I frankly don’t think they have learned their lesson.