- The Washington Times - Tuesday, August 5, 2008

CHICAGO (AP) — 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 revved up with Chrysler’s exit from the leasing business last week is expected to be felt quickly by consumers who enjoy switching vehicles every two or three years without down payments or other ownership obligations.

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

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, now that gas has surged to $4 a gallon. That translates to multibillion-dollar financial losses for the leasing companies and painful payments for their customers as discounts and other incentives long used to artificially lower lease costs 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 for lease at 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.

Such a big jump in payments concerns leasing devotees such as 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.

Mr. 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 vehicles - despite low interest rates and zero-percent finance programs that have made financing more appealing. One of every five new U.S. cars was leased last year.

A downturn is accelerating, though, as both carmakers and banks involved in leasing take a beating and retreat. Besides Chrysler, Wells Fargo & Co. has stopped accepting lease applications from all automakers, JPMorgan Chase & Co.’s auto-finance unit stopped financing leases for Chrysler vehicles, and Ford Motor Co. and GMAC Financial Services have posted huge lease-related losses.

Kevin Beltz, owner of Shadeland Dodge in Indianapolis, applauded Chrysler’s step out of leasing as a good business move.

“How much would you like to bet on what a car’s worth [will be] three years from now, given the circumstances?” Mr. Beltz said.

Industry experts predict that dealers will soon have a dramatically changed mix of cars available for leasing or buying as manufacturers produce fewer trucks and SUVs and more compact cars, hybrids and diesels. But some won’t write leases at all, and others will discourage them with unattractive terms.

So what’s a consumer to do?

There are several basic options to avoid higher monthly payments when a lease expires, according to Art Spinella of CNW Marketing Research: Buy a new vehicle and likely downsize to keep a similar monthly payment, buy a used car, or do nothing and rely on the second car, which most leaseholders have.

Consumers aren’t limited to what’s being offered on the auto lots. They can buy a car or take over someone else’s lease on Web sites like LeaseTrader.com or Swapalease.com, popular sites that act as matchmakers between buyers and sellers.

“At a time when people are reconsidering their basic car-buying decisions, our business has been very strong,” said CEO Chip Perry of AutoTrader.com, where activity and site visitors are up more than 15 percent over a year ago.

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