Last week, Chrysler stopped offering leases.  Giving dealerships only four days notice, the automotive giant pulled the plug on all its leasing programs at once.  After a weekend to contemplate Chrysler's decision, the rest of the Big Three haven't exactly followed suit, but they've come close.

The Calgary Herald reports that General Motors has announced "it would no longer offer leasing incentives for new cars in Canada." 

The General has not followed suit in the U.S., but that decision is apparently being evaluated regularly and could change.  According to Bloomberg, GM North American Sales Director Mark LaNeve sent an email to dealers late yesterday saying "Leases containing incentives will be offered on 2008 and 2009 models in August," but making no promises beyond that time. 

Ford has not decided to exit the leasing business -- just to make leases unfavorable for most buyers.  MarketWatch reports, "Ford Motor Co. told dealers it is raising the lease price on trucks and sport-utility vehicles because of losses at the automaker's financing unit."  Ford dealers believe "the move will make lease prices so high that they will be unattractive to consumers."

Why are automakers running from the leasing business?  The Wall Street Journal explains, "The rise of hefty auto incentives -- including subsidized leases -- came amid the same broad expansion of easy borrowing in the 1990s and 2000s that buoyed American housing prices."  Automakers "loved leases because they could sell higher-priced vehicles, which generate more profit."  Buyers liked them because they "made it possible for millions of Americans to drive newer, more expensive cars than their budgets might otherwise let them buy."   Now, "In both houses and autos, the previous virtuous circle has yielded to a vicious one, with prices falling and credit growing tighter." 

Gas prices have had an impact on the leasing business as well.  SUVs and large trucks, popular in the cheap-gas years, have declined rapidly in value once gas prices began their recent climb.  As consumers return vehicles at the end of their lease term, the cost of that depreciation is absorbed by the automakers.  Ford, the AP reports, wrote off a $2.1 billion loss in the first half of 2008 on the value of returned trucks and SUVs alone.

The Big Three have been the first automakers to pay the price for lease-heavy sales practices, but some analysts believe that foreign makes will soon follow.  A separate AP story notes, "even Honda has been affected by the brewing trouble in the auto leasing sector, recently taking a $230 million charge because of the decline in value of leased vehicles returning to the company. High gas prices have accelerated the decline in value of large pickups and sport utility vehicles, making automakers' lease portfolios less attractive to banks and captive finance companies and leaving automakers to chalk up big losses when they try to sell their off-lease vehicles."

Automakers aren't the only companies who offer auto leases.  They aren't the only companies running from the leasing business, either.  The Detroit Free Press reports, "JPMorgan Chase & Co., the second-largest U.S. bank by assets, will stop offering automobile leases for Chrysler, Dodge and Jeep brands as of Friday."

What does this mean for buyers? 

It may still be possible to obtain a lease at a dealership, but those leases are likely to differ from dealership to dealership, with each dealer contracting with different banks to negotiate terms.  Watchdog groups will likely have more difficulty tracking a de-centralized leasing market.  It will more important than ever for buyers considering a lease deal to consider the terms of the offer carefully, know their lender, and negotiate with multiple dealers to ensure they are getting safe deal. 

The moves will also likely accelerate an already-rapid shift toward smaller, lower-priced cars in the U.S. market, as buyers find it harder to obtain financing for a more expensive vehicle than they could otherwise buy.

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