DETROIT — Chrysler’s financial arm will get out of the auto leasing business by the end of the month because economic conditions have made leasing more expensive than buying, for both consumers and the company.
The move comes as Chrysler Financial is in the process of renewing a $30 billion credit line with banks amid a startling drop in values for leased trucks and sport utility vehicles that are coming back to automakers as leases end.
Chrysler Vice Chairman and President Jim Press said Friday the company wants to allocate limited resources to retail incentives and financing, which make up 80 percent of the market, instead of leasing, which is 20 percent of the U.S. market.
Because banks lend money based on the risk, and the risk of leases sold as securities has increased, interest rates to borrow money for leases are higher than those for retail sales, said Tom Gilman, executive vice chairman of Chrysler Financial.
“They basically premium price for the risk, and the cost of that borrowing has increased dramatically,” he said.
Press said the dramatic drop in truck and sport utility vehicle values at the end of their leases also played a role in the company’s decision.
“We really reached a point today in this environment where the advantages of leasing, the economic advantages of leasing, have really disappeared,” Press said, adding that dealers still can offer leases through independent sources, but not Chrysler Financial.
Chrysler said it will sweeten incentives on the retail side to make up for any lost lease business. The company announced it will expand 0 percent financing for 72 months on vehicles such as Ram pickup trucks, Jeep Grand Cherokees, Commander and other SUVs. The offers will run through the end of July.
The company also plans to enhance its incentives during the next 60 days in an effort to capture more of the retail market, Press said.
Steven Landry, executive vice president of North American sales, said the new incentives will, in many cases, reduce monthly payments so they are close to or the same as lease payments.
“They really look for the monthly payment when they go to the dealership,” he said.
Chrysler’s announcement comes a day after Ford Motor Co.’s credit arm took a $2.1 billion charge because of the drop in the residual value of leased vehicles, mainly trucks and sport utility vehicles.
Press said Chrysler would also have to take a similar write-down, but “it hasn’t been a major problem for us at this point in time.”
Chrysler, which is 80.1 percent owned by Cerberus Capital Management LP, is a private company, and unlike Ford, it does not have to report such losses publicly.
Press also said Chrysler’s gasoline subsidy incentive, which keeps the price for customers at $2.99 per gallon for three years, will end this month.
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