Concerns about Saab leasing in the US

This might be the first bad news post of the new Saab age.

Concerns with Saab leasing first popped up on my radar a few weeks ago when one of our regular readers here, Jose N, sent me a scan of a lease ad from a newspaper in Florida.

Saab Lease Florida We don’t do a lot of leasing here in Australia so I’m not totally up to speed on the structure or value, so here are Jose’s thoughts about this in an email to me…..

I wanted to bring your attention towards the 9-3 Convertible lease offer. $599/month plus tax. This is on a $45k sticker vehicle, so its pretty well equipped. The fine print reads 48 months, 12k miles a year, with $4880 total out of pocket at signing.

As sweet as this vehicle is, its NOT competitively priced.

The Collection Audi is offering a A5 convertible for $499/month, 12k/year, 36 months with ZERO down. South Motors BMW is offering a 328 convertible for $459/month, 12k year, 36 months with $3400 out of pocket and free maintenance. Lexus is the least competitive with their IS250 convertible lease, which is offered at $499/month, 12k year, 48 months and $5k down.

Jose’s a potential customer, but he’s not the only one writing to me about this. There are a number of Saab dealers very concerned about leasing as well.

One of them wrote to me, stating in no uncertain terms that dealers were really concerned about the lease deals they had to offer to customers. We’ve had a few chime in through comments as well:

The next topic to be addressed is leasing… the numbers on a car like the 9-3 convertible are absurdly high, principally due to miniscule residual values set by GMAC.The inference I draw from this is they don’t believe the Spyker/Saab experiment will succeed. Hence they cover their butts with residual values lower by 20 to 30 pct.pts. than ever seen on any Saab product. $750/$800 lease payments will be the basis of a self-fulfilling prediction of failure. We have to be market competitive especially in Saabs most important U.S.sales regions: the New England Northeast and Middle Atlantic corridor.

The option to lese is not enough. It has to be a payment that is realistic. Not giveaway fire-sale style, but an honest straight-up lease payment.

Saab’s leasing deal has just come through and is offered by GMAC. It’s good that there is a lease facility as that’s an important sales tool in the dealers’ arsenal.

It’s not good, however, that the prices have been jacked up so much. This is basically a reflection of lower residual values being factored in by the lease company and it would seem that Saab (either corporate or in North America) has not tried, or been unable to offer that lease company any assurances as to the residual.

A lease cost is based upon the cost of the car being sold, the residual value (i.e. the value at lease end) and the cost of the money used to finance it (i.e. the interest rate). The big factor here is the difference between the cost of the car and the residual value.

It’s understandable to a degree that Saab residuals would have fallen in the minds of a third party financier given that Saab’s reputation was slaughtered by sale process GM put them through last year.

But it’s been suggested to me that Saab could have an effect on those residuals.

Saab can influence the price by giving more margin to the dealer who then discounts the sale, or giving lease support to reduce the sale price to either the dealer or the consumer. Saab can influence the residual by supporting the residual. This would involve a Saab guarantee to the leasing company on the value at lease end. Saab can also influence the money rate by paying the lessor the difference between the market rate and the new reduced selling rate.

The big problem is that if leases are not competitive enough to woo customers, then the dealers will be left with vehicles on their lots, the order banks will be at zero and Saab will be forced to do something drastic. Some sort of incentive laden “Fire Sale” has been the pattern in the past, but I think all concerned are hoping to get out of that GM mentality.

Hopefully the decision makers have taken off their GM hats. Saab have been sold and all concerned have struggled to get this far. It would be a terrible shame if all that effort couldn’t result in actual sales.