Chrysler plans to exit leasing business on Aug. 1

Bradford Wernle
Automotive News

Chrysler Financial, the finance arm of Chrysler Holding LLC, will get out of the leasing business, the company said on Friday, July 25.

"We are shifting our strategy to focus on retail products," said spokesman Bill Porter. "Effective Aug. 1 we will no longer offer lease products in the United States."

Porter said the move by the unit of the No. 3 U.S. automaker, which is controlled by private equity firm Cerberus Capital Management, was prompted by the tough market conditions.

U.S. auto sales have dropped to their lowest level in 15 years, and the sudden premium on fuel-efficiency in the face of record gasoline prices has forced consumers to abandon SUVs and other light trucks.

The result has been a sharp decline in the resale prices for light trucks that has forced major automakers and related lenders to take large losses to write down the value of leases on those once-popular vehicles.

"You have got the dropping of the used car vehicle prices. You have got people that are struggling with the credit crunch," Porter said. "It is very difficult right now to offer competitive lease products. So we are switching our strategy."

The move comes a day after Ford Motor Co. took a $2.1 billion charge because of a drop in residual values of its leased vehicles.

And earlier today, Honda Motor Co. said it expects falling residual values of big used vehicles in the United States to shave another 25 billion yen ($231.8 million) from its operating profit in the year to March 2009.

Earl Hesterberg, chairman of Group 1 Automotive Inc., the nation's fourth-largest dealership group, reacted to the Chrysler news by saying:

"Their credit arm has been a competitive weakness before this action. I really don't see how they can be competitive at all in the marketplace with this kind of action. I have no idea how they can be competitive without any leasing at all."

Group 1 owns eight Chrysler LLC dealerships.

Sid DeBoer, chairman of the Lithia Motors Inc. dealer chain, said the Chrysler move is positive for his company, which owns 38 Chrysler dealerships.

DeBoer said he believes he will now have more retail financing options to offer customers. DeBoer said his dealerships only do about 100 leases a month combined.

"We're going to see more zero-for-72 and a lot of other tools. That helps Lithia sell more cars. If they put zero-for-72 on more products and more cash on the hood, we're going to do better. We've never been big on leasing. Most of our customers are from lunch bucket America."

Reuters contributed to this report