The fallout of much lower than anticipated residuals for end of term lease vehicles continued today as the Bank of America Corporation announced it is exiting its auto leasing business because it does not fit the company's strategic and profitability objectives.
In a statement released today, Kenneth D. Lewis, chairman and chief executive officer for Bank of America, said "We have said for some time that if a business cannot be configured to drive what we believe are consistent, attractive results, we would exit it." According to Mr. Lewis, the leasing business had a "very volatile earning stream" and was "unattractive from a risk-reward viewpoint."
During the mid to late nineties, the industry over estimated what the value of leased vehicles would be at the end of the lease term. Those vehicles are now being returned to the leasing companies with much lower values, causing incredible losses for the industry.
According the Consumer Bankers Association, 95% of the full-term vehicles returned to lessors lost money in 2000, compared with 84% in 1999 and 77% in 1998. In 2000, the losses averaged $2,342.
CNW Research reports the leasing industry lost $10 billion in 2000 and that number could be even higher in 2001 - $11 billion some analysts predict.
Bank of America joins the list of other independent leasing companies that have vacated the field because of the losses in recent months. The list includes big names like GE Capital Auto Financial Services and the First Union and National City banks. Another prominent independent, Bank One has reduced its leasing portfolio by focusing its energies on long term leases only(48 mos. or more).
With independents abandoning the industry, automotive dealers are going to find sometimes the only leasing companies left to work with are the captives. It means those days of cheap monthly payments are over.
Bank of America says it intends to manage its existing $9.7 billion portfolio over its remaining term. There will be no impact to existing customers as the bank will continue servicing existing contracts until their maturity dates. The commercial and retail automotive loan business will not be affected.