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,” 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, 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,” 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 value at the end, the leasing company loses money when it sells the vehicle.
Banks and other lenders are tightening their belts on leases or ending the practice after losing millions 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 said 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.
“We have seen a drop in residual values on those models,” spokeswoman Jerri Franz said. “Bank of America feels it is not appropriate to take equity stakes in products that no longer have a market going forward.” Bank of America still issues consumer loans for those vehicles, she said.
GMAC can’t bail on Oldsmobile.
“We will not treat Oldsmobile any differently than any other GM division,” GMAC spokeswoman Anne Marie Sylvester said, though she could not say for how long. “That depends on General Motors. As long as the vehicles are selling, we will finance them.”
Oldsmobile spokesman Gus Buenz said GM is still producing the division’s five models, including the 2002 Bravada, a sport-utility 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 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). “GM has a ton of money invested in us and our products, and we still have to supply 2,800 dealers. We have a lot of product to sell between now and the end of their life cycle. As long as we can make a little money, we can keep going.”
Oldsmobile sales fell nearly 11 percent in December, the month GM announced it would phase out the brand, but that was the amount sales dropped industrywide. Olds sold 289,172 vehicles in 2000, down 18 percent from a year earlier. Buenz said Olds is “well ahead of our sales objectives for January” but wouldn’t disclose the target.
Vogelheim doesn’t think Oldsmobile will last 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.
Worried owners are calling Oldsmobile to find out what happens next, but 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 for other GM models. The incentives expire April 2 but will likely be extended or replaced. All 2000, 2001 and 2002 models sold Dec. 16 through April 15 also carry a five-year/60,000-mile warranty instead of GM’s usual three-year/36,000-mile warranty (this sentence as published has been corrected in this text).
The second-most asked question Olds gets from owners is what will happen to resale value, and 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.”
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.”
Kelley Blue Book’s residual projection for the midsize Olds Intrigue before GM’s announcement was that it will be worth 44 percent of its original value after three years and 36 percent after four. The Toyota Camry, a model noted for strong resale value, will be worth 56 percent in three years and 47 percent in four, the Blue Book says. Though Vogelheim expects Oldsmobile values to drop, he doesn’t see them sliding off the chart.
“It’s not like a French car company is leaving the country. When Peugeot pulled out, that was more extreme,” he said. “The whole manufacturer pulled out. General Motors will still be around, and most of the Oldsmobile dealers will still be around in some shape or form.”
Bill Kelly Jr., president of Martin J. Kelly Oldsmobile in Arlington Heights, says 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.”
Kelly Oldsmobile has been in business nearly 40 years in Arlington Heights, and Kelly said he has heard “more empathy and concern for us” from customers than questions about whether they can still get parts.
“We tell them GM is not going out of business, so they don’t have to worry,” he said. “We’re ordering parts for a 1974 Oldsmobile today.”
January has been a “not great, not bad” month for sales, he said, and the weather and bad economic news could have as much to do with that as the demise of Oldsmobile. Kelly said he does not know how long Olds will stay in business.
“It really poses a lot of wonderful questions,” he said of GM’s vague phase-out plans. “The best answer I can give is that we just signed a five-year franchise agreement, and we intend to carry it out.”
By law, GM must honor the warranty, and any GM dealer can perform service. GM’s policy is to produce mechanical and body parts for years after production of a vehicle ends, whether it is dropped or replaced. In addition, GM builds certain safety parts, such as seat belts, for up to 13 years after production ends and emission controls for 15 years. After that, it may still build them if there is demand.
“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,” said Buenz.
GM’s practice of selling similar models under different brand names means many components are shared among divisions. The Alero, for example, comes from the same design as the Pontiac Grand Am and uses the same engines, transmissions, suspension components and other major parts. Oldsmobile’s other models also have similarities to other GM models. The 4-liter V-8 and 3.5-liter V-6 engines used in the Aurora sedan are exclusive to Oldsmobile, but both are derived from Cadillac’s 4.6-liter V-8 and use some of the same parts.
Though the Oldsmobile brand is destined to die, some of the models may live under different divisions. Rumors circulating at the Detroit Auto Show indicate the Bravada will continue as a Cadillac and the Alero may become a Chevrolet.
FYI
Here’s basic information for Oldsmobile owners:
– The warranty on all 2000, 2001 and 2002 models has been extended to five years/60,000 miles from three years/36,000 miles on all Oldsmobiles sold Dec. 16 through April 15 (this sentence as published has been corrected in this text).
– Warranty work will be provided by any General Motors dealer, by law.
– Safety parts, such as seat belts, will be available for up to 13 years after production ends and emission controls for 15 years; longer if there’s demand.
– Olds engines, transmissions, suspension components and other major parts are shared with other GM vehicles, making them widely available.
– Owners or lessees of 1996 through 2001 models are eligible for a $1,500 certificate for the purchase or lease of any new Oldsmobile or $1,000 toward the purchase or lease of another GM product.
– GMAC, GM’s financing arm, is writing leases and loans on Oldsmobile products.
– For information, call 866-306-6030 or visit www.oldsmobile.com.
