The decline of auto leasing by American car manufacturers marks another mile driven down the highway to irrelevance. With Chrysler ending its auto leasing program, and Ford
U.S. carmakers are stuck in a bear trap of their own design. The bane of a car buyer is driving the vehicle off the lot. The value of that shiny new ride drops as soon as its wheels touch the road. (Although foreign-made cars also suffer from immediate depreciation, they have held their value much better.) Compare that to a U.S.-made Harley-Davidson
To keep buyers coming in the door, Ford and GM have artificially raised their cars' residual values at lease-end. Further, they misjudged the market for smaller, fuel-efficient cars. While they may have moved faster this time to correct their mistakes, Ford is still feeling the aftershocks of consumer abandonment of its once-popular F-150 pickup truck as gas prices soared.
We don't want your money
While not forsaking leasing completely, Ford has said it is essentially making its pickup trucks "lease proof." It's raising prices on them so much that consumers aren't going to want to lease them. GM, which lost $1.6 billion on off-lease writedowns, will no longer subsidize leases in Canada, although it will continue them in the U.S. for the time being. Chrysler, which realized 22% of its revenues from leasing, has decided to eliminate the program altogether.
Perhaps the carmakers are operating under the theory that getting people out of money-losing leases will push them into more lucrative financing options. Instead of a typical four- or five-year purchase agreement, perhaps they'll stretch out the payments to six or seven years in order to get their car of choice at a lower monthly price.
But who wants a car payment that lasts about as long as most people stay in their houses, exceeds the auto's warranty, and is for a car that's not worth what you paid for it anyway?
Want value? Shop foreign
The Automotive Lease Guide announced recently that six of the seven cars that gained the most in residual value over the past year were made by foreign car manufacturers, with Honda Motor's
So far, BMW is the only foreign carmaker that has decided to offer better purchase incentives to balance out sales that currently realize 60% of U.S. revenues from leases. Daimler, Toyota, and Volkswagen have no such plans in the works. And therein lies the doom for U.S. carmakers.
Ford, GM, and Chrysler produce vehicles that consumers have already shown they're not willing to buy, and new models that may fit their tastes will take some time to get to market. They're cutting back on the one thing that might entice people to get into a domestic vehicle in hopes that they'll take out a longer-term financing deal. The end of leasing joins all the other signs that the American carmaker is dead.