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General Motors Studies Future Of Lease Offers

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The Associated Press

The Tampa Tribune

Published: July 31, 2008

NEW YORK - General Motors Corp. has told dealers it will continue to offer leasing incentives in August, while GM and other automakers continue to scrutinize their leasing practices in light of steep drops in used car values.

Mark LaNeve, GM's vice president of North American sales, said in a memo to U.S. dealers late Tuesday that the Detroit-based automaker will continue to offer leasing deals despite the higher costs and risks associated with them.

"Obviously, current financial pressures will continue to affect our perspective on leasing," LaNeve said in the memo obtained by The Associated Press. "That said, while we obviously can't make guarantees, we are in the market today with competitive programs to make GMAC leasing more affordable and plan on continuing to offer this financing alternative as part of our August incentive play on '08 and '09 models (with some adjustments and exceptions)," the memo said.
Lease incentives allow a company to offer a lower monthly payment by subsidizing the cost of financing the vehicle, helping to attract business as record-high gas prices and a weak economy have led to a steep drop in auto sales, particularly for trucks and sport utility vehicles.

That same jump in gas prices has pulled down the values of large pickups and SUVs, making automakers' lease portfolios less attractive to banks and captive finance companies and forcing automakers to take big losses when they try to sell the formerly leased vehicles.

JPMorgan Chase & Co.'s auto finance arm said Tuesday that it would stop financing leases for Chrysler vehicles after the close of business today, joining Wells Fargo & Co., which stopped accepting lease applications from all automakers July 15.

Chrysler said last week that its finance arm would get out of the leasing business by the end of July.

Also on Tuesday, GMAC Financial Services said it would suspend leasing incentives in Canada but would continue to offer standard rate leases, citing the country's market environment and the drop in used vehicle values.

As of Wednesday, no similar announcement had been made concerning GMAC leases in the United States, GMAC spokeswoman Gina Proia said. GMAC is scheduled to report its second-quarter financial results this morning. GM shares fell 50 cents, or 4.2 percent, to close at $11.40 Wednesday.

LaNeve said the percentage of GM sales represented by leased vehicles has declined in recent years and he expects that trend to continue as the costs and risks associated with leases continue to rise.

Ford Motor Credit Co. said it would raise leasing prices on some models.

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