We know OEMs became sold on leasing when Eustice Wolfington developed the "Half a Car" concept and sold it to Ford. Of course Ford marketing the concept as Red Carpet Lease and Customer Option Plan for their balloon program, which worked better in states where the sales tax was charged upfront. The idea of cycling customers more often through short term leases made a lot of sense. So did the depreciation credits Ford received because the title stayed in the OEM's name. These depreciation credits were a lot more helpful when the OEM was profitable, not so much during extended periods of loss. There is a limit to "loss carry forwards" although I don't know all the details on the subject. I know the IRS disallowed substantial loss carry forwards for GM a few years ago and they posted a huge loss as a result.

After Ford's initial success, all the OEMs sprang to get involved in short term leasing to realize the inherent advantages. Unfortunately, the domestic OEMs were also working at the same time to dismantle their own residuals through huge fleet and daily rental sales. The residual losses they took overwhelmed their depreciation credits and caused them to become more conservative on residuals and extend the lease terms from 24 months to 30 and then 36 months. The Imports had much better results because their residuals stayed high because they managed their overall business better. The Domestics tried to keep things going but were double whammied by residual losses when fuel prices spiked and the Asset Backed Securities market dissolved almost overnight.

What I never understood was why independent banks would try to compete with the OEMs with new vehicle leasing when the domestic manufacturers seemingly had their own death wish going on. To me it made more sense for independent banks to engage in pre-owned leasing, but instead they tried to carve out a niche by offering programs for longer terms. But the same factors caused the independent banks to bail out, although US Bank has stayed in the game. They will now handle leasing for GM in 5 northeastern states. There are many credit unions still actively engaged in leasing, but they are doing mostly balloon financing. They can be conservative with residuals these days and pick their spots.

I mostly agree with Mr. Patel but I'm not sure he understands the total logic behind why OEMs have subsidized leasing. And there is no doubt that the domestic OEMs look at the imports continued success with short term leasing and realize the market share they are losing to them. The subject is somewhat academic at this point as the domestic OEMs don't have the money to get back in the leasing game anyway. Limitations have been put on Chrysler and GM by the Task Force and provisions of the TALF money they have received. But the allure to get back in and protect market share is strong!