Chrysler to Stop Leasing Cars; What it Means

Chrysler — the automaker company that includes the Chrysler, Jeep and Dodge brands — will stop offering leases to customers as of Aug. 1. Chrysler, Jeep and Dodge dealers, however, will still be able to offer leases financed through third parties, like banking institutions.

Depending on how determined the dealer is to make a third party lease seamless to the customer, you might not notice the difference from a purchasing perspective. However, don’t expect every dealer to offer similar deals. Without Chrysler’s financial arm backing leases, offers will differ from one dealer to another, which could cause confusion for shoppers.

From an industry perspective, this is very bad news for Chrysler and its dealers. The company basically is unable to get credit to back leases based on the predicted value — or residual value — of its products when the leases end. Lease payments are supposed to pay for the car’s depreciation, but the banks don’t trust that a 3-year-old Chrysler will be worth enough at the end of the lease. As a result, either the bank would be stuck with a low-value asset at lease end, or the depreciation written into the lease contract would be so great that the payments would be unattractive to consumers. Chrysler’s new president, Jim Press, says there is no longer a financial incentive for buyers to lease over purchasing. That may be true, for Chrysler products. But high residual vehicles from luxury automakers and Japanese brands like Honda and Toyota still equate to lower monthly payments than purchasing and still hold allure for many buyers. 

Chrysler dealers say lease clients are often preferred because they can count on them returning in two to three years, versus buyers opting for five- to six-year financing. senior editor Joe Wiesenfelder sees the move as understandable but still dire.

“This will likely hurt Chrysler on two levels,” he said. “Leasing is how many people are getting out of their gas-guzzlers now, paying off their financing commitment through lower monthly payments. People in this position may be driven to brands with more available lease deals. Beyond that, it’s just a bad sign; it says to consumers that the company doesn’t expect its own products to retain their value. If other automakers follow suit, it will blunt the impact, but if they don’t, this could be very damaging to Chrysler in the long run.”

Chrysler to quit leasing business (Detroit News)

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