A memo reportedly sent byMotor Credit Co. to some dealers saying the auto maker was increasing prices on leases for large trucks and SUVs was the result of a rogue employee and not an officially sanctioned notification, an industry source tells Ward’s.
The memo, which was leaked to The Wall Street Journal, said in part, “due to extreme lossesCredit is taking on off-lease vehicles, it will be necessary for Ford Motor Credit Co. to adjust residuals mid-quarter” on large trucks and SUVs.
The memo also said Ford was expected to make several ’08 trucks and SUVs “lease proof,” meaning the lease rates would be prohibitively expensive for most customers.
“It was not an officially sanctioned communication,” the source says. “It was a guy…that decided to send a note out. It’s not sanctioned wording and had inflammatory and misleading wording and was incorrect.”
Brenda Hines, a spokeswoman for Ford Credit, the captive finance arm that underwrites leases for the auto maker, declines to comment on the controversial memo. However, she says lease prices merely are being adjusted as the residual values of large trucks and SUVs decline.
“We’ve experienced rapid and significant deterioration in auction-market values, particularly in the second quarter for trucks and SUVs,” Hines tells Ward’s. “We regularly adjust our lease values to reflect market conditions. So leasing may be less attractive than in the past.”
The news Ford was modifying its leasing business followed an announcement last week thatLLC was abandoning the practice.
Additionally, General Motor Corp.’s financing unit this week informed Canadian car dealers it will end incentivized leasing in Canada Aug. 1, due to a funding glut and the declining values of vehicles.
“We are continuing leasing, unlike,” Hines says, noting Ford is doing nothing different than it has in the past in regards to its leasing operations.
Last week, Ford Credit took a second-quarter charge of $2.1 billion related to residual values on its lease portfolio.
Johnson, chief economist at Comerica Bank, says in today’s economic climate leasing is a risky proposition for banks and credit institutions.
“I have to think a big part of the leasing program is the risks you create for yourself in terms of residual values that you build into a lease,” he says.
“I was thinking how hard it must be right now to be confident that you would know what the residual values would be on any vehicle several years from now.”
Johnson says a number of uncertainties, including fluctuating energy prices and the emergence of new technologies, make it almost impossible for financial institutions to determine where the market is headed.
“It’s a perilous time to be doing leases,” he says.