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New Hurt: Gas prices take a toll on auto leases
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Published: August 10, 2008
CHICAGO -- Just as motorists are starting to adjust to exorbitant gas prices, they face the prospect of much higher costs, fewer choices and a dearth of financing choices if they want to lease their next car.
A shakeout in the auto leasing industry that revved up with Chrysler's exit from the leasing business last month is expected to be felt quickly by consumers who enjoy switching vehicles every two or three years without down payments or other ownership obligations.
U.S. automakers are scaling back their leasing operations and dropping the discounts and other incentives long used to make leases more appealing, hurt by the plummeting values of trucks and sport utility vehicles.
The main culprit is gasoline -- again. The used SUVs and other gas-guzzlers that the companies' financing arms sell when leases expire are fetching far less than initially expected, now that gas has surged to $4 a gallon. That translates to multibillion-dollar financial losses for the leasing companies and painful payments for their customers as discounts and other incentives long used to artificially lower lease costs are dropped.
The news isn't entirely bleak. Economy cars, holding their value well because of better gas mileage, are expected to be readily available and lease for roughly their current average price of $340 a month.
But the monthly payment on a typical three-year SUV lease could rise by as much as $200 this fall from the current tab of around $500, according to John Blair, the chief executive of Automotive Lease Guide, which forecasts cars' residual or resale values.
Such a big increase in payments concerns leasing devotees such as Andy Stern, a pawnbroker from Southfield, Mich., who pays $450 a month for a Chevrolet Trailblazer SS.
At 32, he already has leased six or seven vehicles after losing money on the first car he bought.
Stern plans to stick with leasing regardless.
"I like the fact that every two years you get a new car, and you don't have to pay anything to return it," he said.
"I can't drive a car for six or seven years -- I just can't do that."
Leasing surged to record levels in the late 1990s. It remains popular -- especially among luxury and more expensive vehicles -- despite low interest rates and zero-percent finance programs that have made financing more appealing; last year one of every five new U.S. cars was leased.
A downturn is accelerating, though, as both carmakers and banks involved in leasing take a beating and retreat. Besides Chrysler, in late July Wells Fargo & Co. stopped accepting lease applications from all automakers, JPMorgan Chase & Co.'s auto-finance unit stopped financing leases for Chrysler vehicles, and Ford Motor Co. and GMAC Financial Services posted huge lease-related losses.
There are several basic options to avoid higher monthly payments when a lease expires, according to Art Spinella of CNW Marketing Research: Buy a new vehicle and likely downsize to keep a similar monthly payment, buy a used car, or do nothing and rely on the second car, which most leaseholders have.
Consumers aren't limited to what's being offered on the auto lots.
They can buy a car, or take over someone else's lease on such Web sites as LeaseTrader.com or Swapalease.com, popular sites that act as matchmakers between buyers and sellers.
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