- The Washington Times - Friday, January 26, 2001

For Oldsmobile owners and anyone thinking about becoming one, here is the good news: Parts and service will be available for years and are the least of your worries.
The bad news? Resale value is headed down and will continue in that direction.
In a nutshell, that is the future for the Oldsmobile brand, which General Motors will phase out over the next few years.
That indefinite timetable raises the possibility of more bad news: GM may be alone in expecting the brand to stay in business that long. Others say it could be as soon as six months before GM pulls the plug because of dwindling sales.
"A lot of dealers and others suggest that they just drop the guillotine now and let it go," said industry analyst George Peterson of AutoPacific Inc. "I don't think they'll do that, though. They'll try to stretch it out."
"The handwriting is on the wall. The fat lady has almost sung," said Sandy Silverman, president of Steven Todd Leasing, a broker in Northfield who leases most brands of vehicles. "There is no question they're going to take a serious hit in resale value. Anyone who buys an Oldsmobile has to understand that unless they keep it until it's dead, it's not going to be worth much."
Charlie Vogelheim, editor of the Kelley Blue Book, which publishes prices for new and used vehicles and projects residual values for leases, sees GM boosting rebates and other incentives to spur sales.
But "people should realize it's not going to be worth as much on the back end because it's being discontinued," Mr. Vogelheim said. "If you keep it for a long time, then you're out of the fire-sale arena. It's just going to be a nine- or 10-year-old domestic sedan. Whether it says Oldsmobile on it won't matter. The effect is going to be more detrimental early on."
Leasing is a different story, Mr. Silverman said, because the leasing company owns the vehicle and the consumer can walk away at the end.
"If an Oldsmobile is cheaper to lease than a Pontiac or Buick, then just do it," Mr. Silverman said. "That's the only way I'd suggest that anyone obtain an Oldsmobile now. When the lease is over, let GMAC worry about it."
GMAC is GM's in-house finance unit, and it lends money for the bulk of Oldsmobile purchases and leases.
As resale values on Oldsmobiles drop, other companies may stop underwriting leases for them. Resale value is critical because depreciation is the biggest cost of leasing a vehicle. Leasing companies project the resale value at the start of a lease. The lower the resale (or residual) value, the higher the monthly payment. If a vehicle is worth less than the projected resale value at the end, the leasing company loses money when it sells the vehicle at auction.
Banks and other lenders are tightening their belts on leases or getting out of the business after losing millions of dollars in recent years. Among the first to stop leasing Oldsmobiles was Bank of America, which notified dealers Jan. 12 it would no longer underwrite 2000 or 2001 models.
Bank of America also announced it no longer writes leases for the Plymouth brand or the Jeep Cherokee. Plymouth ceased to exist Jan. 1, and Cherokee disappears at the end of the 2001 model year.
Oldsmobile spokesman Gus Buenz said GM is still producing the division's five models, including the 2002 Bravada, a new sport utility vehicle that goes on sale this spring.
"We have a new Bravada to launch, and we're going to be producing Oldsmobiles for another two or three years. We will keep selling them as long as it's financially viable," said Mr. Buenz, who conceded, "It's an absolute crapshoot as to how long it's going to last. "If they shut us down now, GM's market share will drop precipitously, and I don't think they would ever be able to recover it," he said. Olds accounted for 5.9 percent of GM's sales in 2000 and 1.7 percent of industry sales (more than Saturn, Mazda or Hyundai).
Mr. Vogelheim doesn't see Oldsmobile lasting two or three years.
"I don't see how it can. Dealers will discontinue taking orders if it is not profitable to keep them on their lots," he said. "I applaud them for trying to do it, but I don't think they can."
Worried owners are calling Oldsmobile to find out what happens next, but Mr. Buenz said the most common question is from bargain hunters who ask, "What are the deals?"
Olds is offering $2,000 rebates on all 2001 models except the Bravada, which carries a $3,000 rebate. Owners or lessees of 1996-2001 models are eligible for an additional $1,500 loyalty certificate that can be used toward the purchase or lease of a new Oldsmobile or $1,000 toward other GM models. The incentives expire April 2 but will likely be extended or replaced. All 2000 and 2001 models also come with a five-year/ 60,000-mile warranty instead of GM's usual three-year/36,000-mile warranty, an offer that expires April 15.
The second most-asked question Olds gets from owners is what will happen to resale value, and Mr. Buenz said, "Our early read from [used-car] auctions is that there's been a little decline, but no more than 2 percent on any model."
Mr. Vogelheim said Kelley Blue Book has not reduced resale values for Oldsmobiles because there has been insufficient data since GM's announcement Dec. 12.
"I see us making a downward adjustment in the future," he said, "but Oldsmobiles weren't very high to begin with, so there's not a lot of room for them to go down."
Bill Kelly Jr., president of Martin J. Kelly Oldsmobile in Arlington Heights, Ill., said resale values seem to be holding and he doesn't expect them to slip out of sight.
"Oldsmobile makes some real good cars now and cars that are good when they're new still make good used cars," he said. "I'll bet you that three years from now a 2001 Aurora will be worth more than a [Chrysler] 300M."
"If we were a stand-alone company, there would be a huge concern among owners about what they do now. Because it is General Motors, they can just go across the street to another GM dealer," Mr. Buenz said. "GM's policy is that we will produce parts as long as there is demand for them."
Though the Oldsmobile brand is destined to die, some of the models may live under different divisions. Rumors circulating at the Detroit Auto Show earlier this month indicate the Bravada will continue as a Cadillac and the Alero may become a Chevrolet.
KNIGHT RIDDER/TRIBUNE NEWS


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