AUBURN HILLS, MI — Chrysler has recently announced an end to Chrysler Financial's lease business.
James Press, Chrysler's vice chairman and president, said the problem with leasing is similar to the issue facing the housing market because of interest-only and adjustable-rate mortgage deals, and called the situation "a bit of a bubble." Chrysler Financial's leases had made up about 20 percent of its total business, The New York Times noted.
"The economic advantages of leasing have really disappeared," Press told media and financial analysts in a conference call on Friday. The combination of low demand for full-size pickups and sport-utility vehicles — an important part of Chrysler's lease business — and the high cost of borrowing were factors in the decision by the now privately owned automaker. A drop in the residual value of the big vehicles when they come off lease has meant losses for Chrysler and other automakers. Vehicle auction company Adesa reported a 7.4 percent drop in wholesale prices for used vehicles in the first half of 2008, while the cost of borrowing for Chrysler and other companies has increased.
Chrysler dealers will be able to offer leases through outside lenders, but Press said the company also plans to sweeten traditional finance deals to make them more affordable and attractive to buyers. For starters, the current program of zero-percent financing for up to six years will be extended and will cover more vehicles.
Interestingly, Chrysler's owner, Cerberus Capital Management, also owns 51 percent of General Motors' finance arm, GMAC. Whether this change will come to General Motors as well remains to be seen.