Car leasing's fall means cost climb for consumers

Just when motorists were starting to adjust to exorbitant gas prices, they face the prospect of much higher costs, fewer choices and a dearth of financing options 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 week 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 per 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, chief executive of Automotive Lease Guide, which forecasts cars' residual or resale values.

Such a big jump in payments concerns leasing devotees like 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.

Carmakers are in the process of shifting their priorities, using the money saved from leasing and spending it on finance deals and cash rebates to persuade customers to buy, according to Jesse Toprak, chief economist for the automotive information site Edmunds.com.

Auto dealers, without the financing deals to sweeten leases, already are trying to coax customers into buying rather than leasing as companies ease away from leasing.

Kevin Beltz, owner of Shadeland Dodge in Indianapolis, applauded Chrysler's step out of leasing as a good business move.

The company is getting hit hard by lower resale values. "How much would you like to bet on what a car's worth three years from now, given the circumstances?" Beltz said.

Industry experts predict that dealers will soon have a dramatically changed mix of cars available for leasing or buying as manufacturers produce fewer trucks and SUVs and more compact cars, hybrids and diesels. But some such as Chrysler won't write leases at all and others will discourage them through the unattractive terms.

So what's a consumer to do?

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 Web sites like LeaseTrader.com or Swapalease.com, popular sites that act as matchmakers between buyers and sellers.

"At a time when people are reconsidering their basic car-buying decisions, our business has been very strong," said CEO Chip Perry of AutoTrader.com, where activity and site visitors are up 15 to 20 percent over a year ago. "We don't feel the effects as much as a dealer or a bank or a manufacturer, because people need transportation."

At least one expert sees pricier leasing as necessary medicine for a car-crazed nation.

Joseph Lescota, chairman of the automotive marketing department at Northwood University in Midland, Mich., says higher leasing costs should help consumers control their "hormonal urge" to trade in their cars about every 28 months on average even if it's to their financial detriment because of the associated costs.

"It's going to be good for the consumer, even if it's going to hurt," he said.

___

AP Auto Writer Tom Krisher contributed to this report.

___

http://www.edmunds.com

http://www.leasetrader.com

http://www.swapalease.com

Back To Top

	Lease or buy? Tough market complicates choice	Associated Press	Mon Aug 4	0
	Leasing takes a lashing as Detroit cuts costs	Associated Press	Thu Jul 31	0