More pain for automakers on the way

Nobody Loves a Three-Year-Old SUV - Thousands of leased gas-guzzlers are back on the lot, and their resale value will batter bottom lines

Excerpt:

Art Spinella, president of CNW Marketing Research, estimates that this year alone the industry will lose $4.7 billion on sales of previously leased SUVs. "This caught everyone by surprise," he says. And it's a problem that will keep on giving because many automakers only recently started to write fewer leases. So there are plenty of newly leased gas-guzzlers out there, some with terms as long as 39 months. Spinella sees $10 billion more in lost value as thousands more SUVs come off lease in 2009 and 201

When automakers calculated lease terms three years ago, they assumed the cars and SUVs would be worth much more once the lease ended than they are. But resale values on large SUVs have fallen 13% from March through May, with some pickups dropping more than 20%, according to Manheim, the nation's largest used-vehicle wholesaler. Knowing the value has plunged, consumers aren't extending leases on many SUVS and aren't keen to buy the vehicles outright.

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Carmakers aren't the only ones getting spooked. Wells Fargo Bank (WFC) said that, starting at the end of July, it will no longer buy auto leases from carmakers. And investors are sharing the pain, too. Last month, Standard & Poor's (MHP) put nine asset-backed securities packed with auto leases on credit watch for a possible downgrade. Investors holding that paper have already taken a hit.

Comment: Almost like a subprime crisis for the automakers. They (or their finance company or investors who own "the paper") own the asset (the leased SUV), they thought the asset was worth "X", but in reality is is worth "X minus drop in market value". Multiple that by thousands of SUV's coming off leases and you have a crisis.