AUTOS—Lenders Growing Cold To Auto Lease Market

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Automobile leasing has hit the brakes this year, as consumer demand softened and manufacturers and financing companies begin to see losses in their leasing operations.

The market for leased vehicles has been hit hard largely because banks and manufacturers miscalculated the value of those vehicles after three years. As a result, fewer incentives are being offered to lease.

The Southern California statistics on auto leasing mirror the national trend, said Tom Libby, director of consulting operations for J.D. Power & Associate’s Information Network division.

Down payments on leased vehicles in Southern California rose from an average of $2,775 per vehicle in the first quarter of 2000 to an average of $3,080 per vehicle in the first quarter of 2001, according to J.D. Power.

The percentage of APR financing below 7 percent, which was used heavily in the new car market nationwide to lure buyers, declined from 30.2 percent to 28 percent for the same periods in Southern California.

And the residual amounts, or the estimated value of leased vehicles, fell by 6.2 percent from an average of $16,805 per vehicle to $15,760 per vehicle.

During the period of March through May 2001, 28 percent of all consumers obtaining cars at Southern California dealerships leased the vehicles, according to J.D. Power. That’s down from 34.1 percent in the same period last year.

The same trend is occurring nationwide, with 19.9 percent of consumers leasing vehicles in March-May this year, down from 23.7 percent in the year-earlier period.

“A lot of funders, a lot of banks, have gone out of leasing because they ended up losing money,” said Katherine Sparacino, executive director of the National Vehicle Leasing Association in Burlingame, Calif.. “Sometimes when you put the residual value high, payments are lower. But at the end (of the lease term), if you can’t re-lease the car for the amount you invested, you end up losing money.”

Independent lessors have had difficulty getting financing from national and community banks, as well as from auto manufacturers’ financing arms, Sparacino said.

Leasing has also declined as prices on used cars dipped and new cars are adorned with special incentives, said David McKay, director of auto finance at J.D. Power.

But the leasing losses aren’t expected to continue.

“In the last year is when it really soured,” Sparacino said. “When the stock market took a dive is when it really started showing itself probably in the last 18 months. The trend is probably going to continue for the next 18 months. It will be like anything else. It will even itself out as those old leases are coming off. There will be a time when they will come to an end.”

The downfall in leasing, which is often lumped with used car sales, is a major blow to banks, which are being squeezed out of the new-car market. Dealerships, termed “captive” financiers, are able to provide greater reductions on APRs since they are subsidized by automobile manufacturers, McKay said.

“(Banks) can’t compete with 0.9 percent financing,” McKay said.

But the percentage of new cars financed through captives dropped in the first quarter to 57.1 percent in Southern California from 67.9 percent in the year-earlier period. Among the possible factors: a nationwide financing incentive program on minivans spurred by DaimlerChrysler in the first quarter of 2000 that was not continued the following quarter.

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