Chrysler & Some Banks Halting Leasing is About Vehicle Capitalization: The reason that banks and captives keep reporting that they are losing money lease funding vehicles is because of the practice of putting the lease transactions on their books at the full MSRP as the capitalized cost, rather than at either the dealer cost or even the factory cost.
The capitalized cost or "starting point" of a vehicle for purposes of computing the lease residual, the "interest factor", and the ultimate monthly lease cost to the lessee is based, then, on an inflated "cost" or the MSRP of the vehicle, sometime even amount greater than the MSRP.
It is no wonder that the monthly depreciation reserve or the ultimate projected end of lease residual does not represent the wholesale used vehicle market value at the end of the lease.
At the same time, "Loan" funding transactions orginated by dealers and sent to captives and banks every day are also "inflated" because of "execessive loan profit markups" and the added "cost" of getting the buyer out of the "under water" situation with the customer's trade-in. So what is the difference between this loan and the lease transaction ?--- the customer is taking the "loss" on the residual or market value on the loan vehicle not the captive finance company or the bank.
Now, Chrysler and even the market saavy, Jim Press, are saying the "economic advantages of leasing has disappeared". Nonsense-- it actually is in Chrysler's best interest to immediate crank up their leasing entity by "capping the cars" at Dealer Invoice and using 1% over prime interest and then merchandize payments -- and they will start selling cars and even trucks again.
With all due respect, it all about how a loan or lease transaction are structured at the beginning of the transaction. By giving dealers the "carte blanche" on how vehicle leases and loans are booked and funded, the captives and banks are burying either their captives or their customers in funding transactions that are comparable to housing mess now causing all the market and financial downturn and subsequent recession and sales impact.
The capitalized cost or "starting point" of a vehicle for purposes of computing the lease residual, the "interest factor", and the ultimate monthly lease cost to the lessee is based, then, on an inflated "cost" or the MSRP of the vehicle, sometime even amount greater than the MSRP.
It is no wonder that the monthly depreciation reserve or the ultimate projected end of lease residual does not represent the wholesale used vehicle market value at the end of the lease.
At the same time, "Loan" funding transactions orginated by dealers and sent to captives and banks every day are also "inflated" because of "execessive loan profit markups" and the added "cost" of getting the buyer out of the "under water" situation with the customer's trade-in. So what is the difference between this loan and the lease transaction ?--- the customer is taking the "loss" on the residual or market value on the loan vehicle not the captive finance company or the bank.
Now, Chrysler and even the market saavy, Jim Press, are saying the "economic advantages of leasing has disappeared". Nonsense-- it actually is in Chrysler's best interest to immediate crank up their leasing entity by "capping the cars" at Dealer Invoice and using 1% over prime interest and then merchandize payments -- and they will start selling cars and even trucks again.
With all due respect, it all about how a loan or lease transaction are structured at the beginning of the transaction. By giving dealers the "carte blanche" on how vehicle leases and loans are booked and funded, the captives and banks are burying either their captives or their customers in funding transactions that are comparable to housing mess now causing all the market and financial downturn and subsequent recession and sales impact.
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