Saturday, August 2, 2008

Leasing: How The Manufacturers Tried To Screw You And Screwed Themselves Instead

This week has been bad for the American automakers. Not only are they not able to sell their stale product, they are trying to do it in the middle of a credit crunch. Leases were a great way to go for some individuals given the current financial climate. But, that has now changed.

Cerberus, Chrysler's parent (including Chrysler Financial) and owner of GMAC, has announced that they will no longer be offering automobile leases as of last week. Well, hold on here, what does this actually mean?

Well, for starters, let's discuss how this came about. A lot of lending companies, after making so much money for so many years, are now seeing a high number of defaulted loans, from homes, to cars, to store credit cards and even pay day loans. There is now more risk on the lender's behalf in the current financial climate that they need to take into account.

But, in addition to that, the American companies in particular are having a hard time as their product lines are comprised of a lot of trucks and SUVs. The same trucks and SUVs that get horrible fuel economy that nobody wants anymore. End result: resale values for these large vehicles are now the worst they have ever been when compared to their original selling price.

Chrysler understands this. Their line-up of product includes some very hefty vehicles that aren't that easy on gas. So, nobody wants their vehicles. Add to that the fact that they also build some of the most horrid cars in the small- and midsize-car segment and you end up with Chrysler/Dodge/Jeep dealers with a lot of inventory and nobody to buy it. Even the used inventory isn't moving.

So, now they will attempt to make purchasing as cheap as leasing. How this turns out, we will just have to wait and see.

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