Friday, 15 August 2008
Auto Manufacturers Cutting Back on Lease Deals
« Mercedes opens high performance AMG retail centers, pushing new C63 model | MainLeasing deals on new vehicles are quickly becoming extinct. As we reported before, in 2008 the percentage of new vehicle sales that were lease contracts rose to 22%, from 19.3% in 2007. Dealers originally pushed leasing deals, in the face of declining sales, to get vehicles out of the lots and into the hands of drivers. Well, times they are a changing. Due to record high interest rates and Detroit’s current financial situation, leasing contracts can be seen less and less. Consumers are also faced with the new decision of whether a leasing contract is any longer a smart financial decision. Although leasing contracts previously allowed drivers to drive vehicles they couldn’t afford otherwise, now leasing contracts don’t carry the same benefits.
Chrysler has recently announced they were no longer writing lease deals following the first of August. Following close behind, GM and Ford have announced they too would cut back on new lease deals for new vehicles. Auto financing companies are rapidly losing money because of the decreasing residual value of SUV’s and large trucks. Ford saw the residual value of their SUV’s fall 25% last month, and this declining value has been the cause of over $8 billion in financing losses. The response from manufacturers has been to eradicate or reduce their leasing options. Chrysler dealerships can still lease their vehicles, however they will need a private company to deal with the financing.
New England and the Great Lakes are expected to be affected the worst, where leasing percentages are 50% and 70% respectively. Although this is bad news for habitual leasers, repair and service shops are expected to see increased profit because owners are now locked into their purchased vehicle, instead of a monthly payment and a brand new car every few years. Used car sales are also expected to rise, because consumers will choose to buy used, at a reasonable price, and will be able to keep their car at the end of the deal. Leasing may not disappear completely, but the deals will be harder to spot and much more limited.
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