Car Leasing Curtailed by US Car Manufacturers Why? What Does it Mean to Auto Consumers?

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Chrysler, GM, and Ford, the “Big Three" US car manufacturers are in deep trouble, which has been coming for a long time, but the recent increases in fuel prices sent them into a tight death spiral primarily because of their dependency on exactly the kind of vehicles that consumers now do not want - large trucks and SUVs. European and Asian car makers don't have the same problem and have remained healthy through the economic storm.

After announcements of layoffs, plant closings, and heavy financial write offs, by all three US car manufacturers, one of the latest moves which is yet another shot to the foot is the elimination or cutting back on car . Approximately 20%-25% of sales are leases for the US car makers. A segment of the consumer population used the lower monthly cost of leasing to be able to afford the vehicles they needed or wanted. With the recent changes regarding leasing, these companies are adding one more reason for consumers to look at foreign-owned car brands.

Cutting out leasing or increasing the cost of leasing won't solve the US car companies' problems. The problems are much larger and deeper based. It's simply the actions of desperate companies making desperate decisions that only make the problem worse. More customers will jump ship and buy or non-American.

Most dealers have multiple sources of financing which includes large national banks such as Wells Fargo and Chase. Some of these banks have hurt themselves with aggressive deals, in an attempt to be competitive with deals offered by the “captive" companies owned by car makers. These banks can easily take up the slack left by Ford, GM, and Chrysler, but they now won't have to try to compete with their money-losing deals. So we can expect many of these alternative sources to increase leasing costs. However, leasing will always offer lower monthly payments than loans.

What does all this mean for us as consumers?

It means that requirements will tighten considerably for all types of automobile financing, not just leases. The car companies have lost too much money lending to high-risk customers. It'll be harder to qualify for loans and leases, especially for promotional deals. requirements will increase. Anyone with a credit score of less than 700 will have to look long and hard for low cost .

Leasing will still be available and will continue to be a viable option for many people. Costs will be higher, just as costs will be higher for loans. However, the best lease deals have been, and will continue to be, for those vehicles that hold resale value well. The higher the lease-end residual value, the better the lease deal. That is why gas-guzzler trucks and SUVs will not be good lease deals, and why Honda, Toyota, Mercedes, BMW, and other non-US brands will continue to be good lease vehicles, just as they always have been.

Al Hearn is founder, owner, and operator of two popular automotive consumer web sites, Lease Guide and Used Car Advisor , which provide free auto buying, selling, leasing, and advice.

Morgan Murphy