GM Joins Ford Worrying About Declining Used-Car Prices
General Motors Co. said a glut of used cars will come back to market after their leases expire and haul on its finance unit this year, following similar warnings by peer Ford Motor Co. and lenders such as Ally Financial Inc.
The prices of used cars in GM Financial’s leasing portfolio will decline about seven percent this year, GM Chief Financial Officer Chuck Stevens said on a conference call with analysts Thursday. The value of used GM vehicles have depreciated swifter than expected in the very first quarter, particularly with crossovers, and prices will fall as much as three percent next year.
“Leasing became the flavor of the month,” Maryann Keller, an auto industry consultant in Stamford, Connecticut, said by phone. “This is a consequence of the behavior we’ve seen.”
Ford touched off concerns about declining used car prices late last year, when the automaker cut its lending unit’s profit forecast by $300 million. The National Automobile Dealers Association’s used vehicle price index plunged in February by the most since November 2008, spurring concerns about the fallout for automakers, lenders including Ally Financial and car-rental companies such as Hertz Global Holdings Inc.
When auto lenders lease out vehicles, they charge the customer a monthly payment and make an assumption of the car or truck’s value when it will be returned and re-sold as used. If vehicles are depreciating more than expected, losses can pile up. Automakers and lenders then may have to begin suggesting less-attractive terms on fresh leases.
GM rose 0.6 percent to $34.Nineteen as of 12:40 p.m. in Fresh York trading. The shares have slipped 1.9 percent this year, trailing the Five.Three percent rise in the S&P five hundred Index.
The deteriorating value of smaller sport utility vehicles such as the Chevrolet Equinox is a surprise because the segment has been one of the fastest-growing within the U.S. auto market. Crossovers are about forty five percent of GM’s lease portfolio, followed by trucks and SUVs at thirty percent and passenger cars making up the rest.
The declining re-sale values are manageable and GM Financial’s profits will still rise this year, Stevens said.
“This is something that we need to closely, closely monitor and pull every lever,” he said.
Used-car prices are falling swifter at auction — where automakers typically dispose of off-lease vehicles — than they are on dealer lots. CarMax Inc., the largest seller of used-vehicles in the U.S., said Thursday that average wholesale vehicle selling prices fell 6.8 percent to $Four,910 in the quarter ended in February, while the average price of used vehicles to consumers slipped only 1.6 percent to $Nineteen,435.
GM Financial should still be able to meet its profit goals, Stevens said. The automaker has projected enlargening the unit’s profit to more than $1.6 billion by 2018. The unit reported $913 million in adjusted pretax earnings last year.
— With assistance by Jamie Butters
GM Joins Ford Worrying About Declining Used-Car Prices
GM Joins Ford Worrying About Declining Used-Car Prices
General Motors Co. said a glut of used cars will comeback to market after their leases expire and haul on its finance unit this year, following similar warnings by peer Ford Motor Co. and lenders such as Ally Financial Inc.
The prices of used cars in GM Financial’s leasing portfolio will decline about seven percent this year, GM Chief Financial Officer Chuck Stevens said on a conference call with analysts Thursday. The value of used GM vehicles have depreciated swifter than expected in the very first quarter, particularly with crossovers, and prices will fall as much as three percent next year.
“Leasing became the flavor of the month,” Maryann Keller, an auto industry consultant in Stamford, Connecticut, said by phone. “This is a consequence of the behavior we’ve seen.”
Ford touched off concerns about declining used car prices late last year, when the automaker cut its lending unit’s profit forecast by $300 million. The National Automobile Dealers Association’s used vehicle price index plunged in February by the most since November 2008, spurring concerns about the fallout for automakers, lenders including Ally Financial and car-rental companies such as Hertz Global Holdings Inc.
When auto lenders lease out vehicles, they charge the customer a monthly payment and make an assumption of the car or truck’s value when it will be returned and re-sold as used. If vehicles are depreciating more than expected, losses can pile up. Automakers and lenders then may have to begin suggesting less-attractive terms on fresh leases.
GM rose 0.6 percent to $34.Nineteen as of 12:40 p.m. in Fresh York trading. The shares have slipped 1.9 percent this year, trailing the Five.Three percent rise in the S&P five hundred Index.
The deteriorating value of smaller sport utility vehicles such as the Chevrolet Equinox is a surprise because the segment has been one of the fastest-growing within the U.S. auto market. Crossovers are about forty five percent of GM’s lease portfolio, followed by trucks and SUVs at thirty percent and passenger cars making up the rest.
The declining re-sale values are manageable and GM Financial’s profits will still rise this year, Stevens said.
“This is something that we need to closely, closely monitor and pull every lever,” he said.
Used-car prices are falling quicker at auction — where automakers typically dispose of off-lease vehicles — than they are on dealer lots. CarMax Inc., the largest seller of used-vehicles in the U.S., said Thursday that average wholesale vehicle selling prices fell 6.8 percent to $Four,910 in the quarter ended in February, while the average price of used vehicles to consumers slipped only 1.6 percent to $Nineteen,435.
GM Financial should still be able to meet its profit goals, Stevens said. The automaker has projected enhancing the unit’s profit to more than $1.6 billion by 2018. The unit reported $913 million in adjusted pretax earnings last year.
— With assistance by Jamie Butters
GM Joins Ford Worrying About Declining Used-Car Prices
GM Joins Ford Worrying About Declining Used-Car Prices
General Motors Co. said a glut of used cars will come back to market after their leases expire and haul on its finance unit this year, following similar warnings by peer Ford Motor Co. and lenders such as Ally Financial Inc.
The prices of used cars in GM Financial’s leasing portfolio will decline about seven percent this year, GM Chief Financial Officer Chuck Stevens said on a conference call with analysts Thursday. The value of used GM vehicles have depreciated quicker than expected in the very first quarter, particularly with crossovers, and prices will fall as much as three percent next year.
“Leasing became the flavor of the month,” Maryann Keller, an auto industry consultant in Stamford, Connecticut, said by phone. “This is a consequence of the behavior we’ve seen.”
Ford touched off concerns about declining used car prices late last year, when the automaker cut its lending unit’s profit forecast by $300 million. The National Automobile Dealers Association’s used vehicle price index plunged in February by the most since November 2008, spurring concerns about the fallout for automakers, lenders including Ally Financial and car-rental companies such as Hertz Global Holdings Inc.
When auto lenders lease out vehicles, they charge the customer a monthly payment and make an assumption of the car or truck’s value when it will be returned and re-sold as used. If vehicles are depreciating more than expected, losses can pile up. Automakers and lenders then may have to begin suggesting less-attractive terms on fresh leases.
GM rose 0.6 percent to $34.Nineteen as of 12:40 p.m. in Fresh York trading. The shares have slipped 1.9 percent this year, trailing the Five.Three percent rise in the S&P five hundred Index.
The deteriorating value of smaller sport utility vehicles such as the Chevrolet Equinox is a surprise because the segment has been one of the fastest-growing within the U.S. auto market. Crossovers are about forty five percent of GM’s lease portfolio, followed by trucks and SUVs at thirty percent and passenger cars making up the rest.
The declining re-sale values are manageable and GM Financial’s profits will still rise this year, Stevens said.
“This is something that we need to closely, closely monitor and pull every lever,” he said.
Used-car prices are falling swifter at auction — where automakers typically dispose of off-lease vehicles — than they are on dealer lots. CarMax Inc., the largest seller of used-vehicles in the U.S., said Thursday that average wholesale vehicle selling prices fell 6.8 percent to $Four,910 in the quarter ended in February, while the average price of used vehicles to consumers slipped only 1.6 percent to $Nineteen,435.
GM Financial should still be able to meet its profit goals, Stevens said. The automaker has projected enhancing the unit’s profit to more than $1.6 billion by 2018. The unit reported $913 million in adjusted pretax earnings last year.
— With assistance by Jamie Butters