Chrysler Financial, the leasing and
financing arm of car manufacturing giant, said it is shutting down
its auto-leasing business in the US from August 1.
This comes in response to the plummeting resale values of
gas-thirsty trucks and sport utility vehicles – which have proved
to have caused big losses for US automakers.

Co-president at Chrysler, James Press, said the company will
divert the money it had been spending on its leasing arm into more
traditional financing offers. This will include offering discounts
to customers, so their monthly repayments would be similar to that
seen in a lease.

Since leasing accounts for 85 per cent of the dealership’s
business, the initial period following the closure of its leasing
business will see losses. But this will change in the long run,
according to Press.

Leasing is becoming less popular in this sector for a variety of
reasons. Firstly, since the larger vehicles under lease have lost
their residual values, there will be great losses when selling off
the vehicle at the end of the lease period.
Press said: ”Leasing was being used in some cases to get people
into product who probably economically shouldn’t have been in
leases,” he said. ”That kind of exposure is a little bit of a
bubble, and we’ve got to clean that up.”
Secondly, Press added that the lower interest rates have made
financing more appealing than leasing and that leasing is creating
more financial risk for the automaker.

”We really reached a point today, in this environment, where
the economic advantages of leasing have really disappeared,” Press
said.

Chrysler customers will still be able to get leasing
arrangements for Chrysler products through independent banks.

Chrysler’s exit may affect other major auto-lessors. Since
Cerebus Capital Management, which owns Chrysler, also owns 51 per
cent of GMAC Financial Services, a fall-out might ensue.
Analysts expect GMAC will take significant write-downs on its lease
portfolio as a result of a number of contributing factors,
including Chrysler’s exit.

Ford also recorded a US$2.1bn write down in the second quarter
of 2008, part of its overall US$8.7bn loss due to unprofitable
leases in its finance arm Ford Motor Credit.

 

Motor Finance Issue: 45 – July 08
Published for the web: July 29 08 9:30
Last Updated: July 31 08 9:52