Business

Sticker shock coming for those who lease cars

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 accelerated with Chrysler's exit from the leasing business last week is expected to be felt quickly by consumers who enjoy switching vehicles every few years without down payments or other ownership obligations.

U.S. automakers – hurt by the plummeting values of trucks and sport utility vehicles – are scaling back leasing operations and dropping discounts and other incentives used to make leases more appealing.

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, what with gas at $4 a gallon. That translates to multibillion-dollar losses for the leasing companies and painful payments for their customers as discounts and other incentives 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. stopped financing leases for Chrysler vehicles; and Ford Motor Co. and GMAC Financial Services posted huge lease-related losses.

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.

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