Chrysler LLC said on Friday its 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 US$30 billion credit line with banks amid a startling drop in values for leased trucks and sport utility vehicles (SUV) that are coming back to automakers as leases end.
Chrysler vice chairman and president Jim Press said 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 US 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 SUV 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 during a conference call on Friday afternoon with reporters and industry analysts.
The Chrysler announcement comes a day after Ford Motor Co’s credit arm took a US$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.”