It's getting harder to find a car to lease these days. Chrysler's financial arm recently pulled out of the car leasing business, and Ford Motor Credit, GMAC and many large banks also have announced pullbacks.
The reason? Lease financing companies, particularly the Big Three automakers' captive finance arms, are being pummeled by the falling residual values of trucks and SUVs coming off lease, which have fallen as much as 20 percent in just the last few months.
The impact? If you've got excellent credit -- 700 credit score or above -- and are looking to lease outside of the Big Three, you'll likely still qualify for a decent deal. Otherwise, you'll either be out of luck or will face much higher lease payments.
"The subsidized car leases from the Big Three that gave buyers stunningly low payments for two or three years won't be out there anymore," says Jack Nerad, executive editorial director and executive market analyst with Kelley Blue Book's online arm, kbb.com. "You can still qualify for a lease if you want to lease and have good credit by going through a bank or credit union, but the deals that were previously available with such low monthly payments are gone."
For most consumers, this means that buying just got more attractive than leasing, especially if you're looking for a low monthly payment and have excellent credit. Low rate and zero percent financing offers for 60- to 84-month loans are available and serve the Big Three's aim of transferring the potential risk of falling residual values to consumers.
The scoop
It's no secret that the Big Three are in trouble -- a combination of factors, including high gas prices and falling home values, have led to the bottom dropping out of the SUV and truck markets, which these automakers relied upon for much of their profits. To stem their losses, Detroit is taking action.
In the short term, these moves may help limit Big Three losses on leasing, although some question whether limiting customer's options is ultimately a good idea.
"Consumers are looking for more flexibility and options in terms of acquiring vehicles, so this seems like a hasty decision on the part of the Big Three," says Brad Neigel, a senior analyst with Aite Group in Boston. "Ultimately, by offering fewer options, they could be driving customers away."
This doesn't mean that you won't be able to lease a car, SUV or truck from local General Motors , Ford or Chrysler dealers. Big Three dealers will continue to offer lease financing, but on a less attractive basis. Foreign carmakers have no such constraint and will likely offer a full range of leasing options, but haven't historically offered as much of a discount on leases as the Big Three.
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And banks, already reeling from subprime mortgage losses, are also taking hits on falling residual values. Among large banks, Wells Fargo & Co. is exiting the leasing market, and Chase Auto Finance will no longer write leases for Chrysler models. Many banks and credit unions are still writing leases, but are generally tightening underwriting standards.
Buying vs. leasing dynamics
While leasing grew in popularity during the past 10 years, only about 20 percent of all drivers lease, with the other 80 percent buying cars. This ratio could tilt further toward buying as leasing terms grow less favorable and buying terms grow more favorable. The only hitch is that the lowest payments will generally be on long-term loans, in which buyers are likely to owe more than their car is worth for most, if not all, of their loan period.