Posted by: David Kiley on July 28, 2008
http://www.chrysler.comChrysler’s decision Friday to exit the leasing business is perhaps the most ominous indication of the automaker’s future.
Chrysler is facing huge losses this year because of the falling residual values of the pickups and SUVs that are coming off lease. Automakers, when they write leases, take the incentive money they would otherwise spend on a sale and subsidize the residual value of the vehicle to make the lease price cheaper.
Auto company execs also have in the past made monthly lease payments even cheaper by gambling that they will be in better financial shape three years hence in order to be able to absorb the difference between the residual value set when the consumer took the car and what the actual auction price for the car is after three years.
Chrysler has been guilty of all of this.
If a consumer really wants to lease a Chrysler, they will have to do it through a third party finance/leasing company rather than Chrysler Credit. The terms of such a lease will pretty much always be uncompetitive with lease terms offered by captive finance companies of rivals like Ford Motor Credit and GMAC.
What Chrysler is saying by getting out of leasing? It has no idea what the basement is when it comes to guessing how fast values of its vehicles will fall in the next three years. This year, even Honda dealers who enjoy some of the best residual values in the industry, saw values of some models like Odyssey minivans fall $3,000 at auction in just two weeks. Residuals for Jeep Grand Cherokees, Chrysler Aspens and Dodge Durangos will be ugly.
Second: Dealers believe that Chrysler does not want to have an overhang of lease losses on its books in the likely event that it either strikes a significant alliance with another automaker or is forced to break the company up.