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Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: flatsville who wrote (66170)	2/9/2001 8:56:05 AM
From: Box-By-The-Riviera™	Respond to of 436258

will do

To: flatsville who wrote (66170)	2/9/2001 9:00:17 AM
From: Box-By-The-Riviera™	Respond to of 436258

BAC et al and the SUV auto leases =DJ Auto Lenders Suffer Hangover From Generous SUV Leases 08 Feb 15:00 By Christine Richard Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Generous auto leasing deals helped to move thousands of high-margin sport utility vehicles off dealers' lots in the late 1990s. But the terms of those leases may come back to haunt the auto sector. That's because banks and finance companies, burned over the last two years by forays into auto leasing, are exiting or scaling back auto leasing. Those that remain aren't offering the generous terms that helped to popularize vehicles with sticker prices as high as $30,000 to $40,000. "Bank mispricing of leasing product and its risk resulted in more car sales and unusually favorable lease terms for consumers," said Ronald Loshin, president of Bank Lease Consultants. That chapter in U.S. banking history has closed. "Automakers were for a while able to offload subsidies on to the banks," said Alan Kral, a bond fund manager with Trevor Stewart Burton & Jacobsen in New York. "Now auto companies are going to have to take on more of the subsidy or let prices rise in a market that is cyclically weak." General Motors Corp. (GM) sales overall dropped 5.1% in January from a year ago, Ford Motor Co. (F) sales were off 11% and DaimlerChrysler (DCX) sales slumped 16%. Two Standard & Poor's reports issued earlier this week, which explained the agency's decision to assign a negative outlooks to Ford and GM, cited "intensification of competition in the North American automotive market" as a top concern. Debt issued by bond behemoths Ford Motor Credit Corp. and General Motors Acceptance Corp. has been under pressure since late last year because of the economic outlook. A tighter environment for auto lease financing is only likely to the industry's concerns. "The willingness of the whole banking sector to finance consumer purchases is supportive of the auto industry," said Scott Sprinzen, auto sector credit analyst at S&P. "To the extent that credit dries up, that will hurt the auto industry." Banks Scrambled To Finance SUV Craze In a scramble to get into the auto leasing business during the 1990s, banks and finance companies made some very optimistic assumptions about the prices at which they would be able to sell SUVs when leases expired. In some cases banks enhanced residual values by as much as 13% over those suggested by the Automotive Lease Guide, the industry standard, according to a report recently released by Bank Lease Consultants in Larkspur, Calif. Those standards in some cases proved to have underestimated residuals by as much as 25%. "One by one, virtually every bank lessor has announced or given signs that it is reeling from residual value losses," the report said. Bank of America (BAC) was the latest to announce it scaled back auto leasing after it admitted to $257 million residual related losses in the last quarter. One reason for the overly optimistic residual values was the scarcity of SUVs in the used car market at the time that many financial institutions got into the business. That meant hefty resale values for the popular vehicles. Once the carmakers stepped up production, however, prices declined. Residual values were also boosted in an effort to offer consumers more attractive monthly payment terms. "The more competitive the lease product and the greater the opportunities dealers were afforded to increase their profits, the more business a bank would gain," according to the Bank Lease Consultants report. "No means of achieving low monthly payments was as powerful or as relatively inexpensive as `enhancing' residual values in order to gain lower monthly payments." The equation was simple: increase the value at which the car would be resold and you could significantly cut the cost to consumers before the resale. Ironically, banks were left holding most of these residual SUV losses because manufacturers, even with their huge captive financing companies, largely abandoned the SUV leasing business to the banks. Manufacturers concentrated mainly on moving less popular models with sweet lease deals, according to the report. And, unfortunately for the banks, SUV residual values have taken the biggest tumble by far in recent years. Used SUV Prices Sink A number of factors came together to help sink prices on used SUVs in 2000 and further weigh on residuals. In addition to the a large number of leased vehicles entering the market, rising oil prices and safety concerns following Firestone's tire recall caused dealers to step up incentives. "Since manufacturers had huge profit margins in these vehicles, often as much as $8,000 to $10,000, there was plenty of room for aggressive subvention (manufacturer discounting), which thereby directly hurt used vehicle values," according to the leasing report. "Lessors observed that an announcement of a cash rebate on a new model would result in almost the same level of drop in the auction prices for the 2- and 3-year-old models." If there is a worrying legacy for the auto sector of the boom and bust in bank auto leasing it may be that "the whole leasing concept pulled sales forward," said Bill Cunningham, chief fixed income strategist at J.P. Morgan Chase. "It may have caused people to buy who would have waited and could exacerbate a downtrend." -By Christine Richard, Dow Jones Newswires; 201-938-4384; christine.richard@dowjones.com (END) DOW JONES NEWS 02-08-01 03:00 PM