US no longer the heartland of the motor industry
IN THE UNITED STATES things are even worse. Hordes of Americans are keen to get rid of their huge gas-guzzlers and buy something smaller. Not so easy. The prices of big SUVs have fallen so much that many Americans also find themselves in the unenviable position where the trade-in value of the vehicle is worth less than the outstanding amount owed. The list of how the prices of a few second-hand SUVs in the US have fallen looks like good news to many prospective SA owners of one of those vehicles, while existing owners become just a little more worried.
In the US, one in every five new vehicles is sold via leasing rather than hire purchase. Chrysler opted for all its vehicles to be sold via leasing. Typically for that type of transaction there’s no deposit, 60 monthly payments and a residual value of 30% of the purchase price after 60 months. However, the prices of those vehicles have fallen so much that an honest valuation of the leasing contracts would result in a significant loss.
In fact, just last week Ford’s financing subsidiary did a special write-off of US$2,1bn on its outstanding leasing contracts because the value of used cars had fallen so sharply.
For the man in the street there’s little chance of escape. Due to the poor prices of large second-hand SUVs, and even sedan cars, there’s now no possibility of trading in such vehicles for smaller, more fuel-efficient ones. The difference between the trade-in value of a large vehicle and the outstanding balance at the bank is so large that no transaction is possible, even if the dealer adds every possible cent of discount on the new vehicle to the trade-in value.¤