Car Dealer Lawyer

Chrysler Financial and Ford Motor Credit Co.’s decision to end leasing is unsettling for many reasons.  The underlying problem is that as leases come due, the vehicles’ residual values are much higher than the market values.  Something similar happened to World Omni Finance Corp. several years ago when it was the principal leasing source for Toyota dealers in the Southeast.  World Omni’s response to the problem was to implement a very aggressive program to convince customers to purchase their lease vehicles instead of turning them in.  The program included strong incentives for lessees and a persistent follow-up program by the call center.  This program lasted for years until the over-residualized vehicles finally worked their way through the system.

World Omni’s response was successul, but the the program put the factory in direct competition with the dealers.  Normally, when a lease terminates, the dealer has a chance to sell a new car, and can often pick up the lease turn-in at market value.  But when World Omni convinced the customer to buy the leased vehicle, the dealer never saw the customer.  The transaction was handled by mail – no sale – no financing – no customer.  Even worse, the deal usually took the customer out of the market for several years. 

I have no inside knowledge of how Chrysler Finance and Ford Motor Credit will deal with this problem.  Maybe I am just worrying for nothing (worrying is my job!).  But if Ford and Chrysler dealers find themselves up against a strong new competitor, I would not be surprised.