The sputtering car-leasing business has slammed the financing arms of automakers, but local dealers said Wednesday the development has not hit them as hard as other economic factors.
"Leasing is not a real large part of our business, with all the zero-percent financing options that are out there and cash-back deals," said David A. Rodgers, senior vice president and general manager of the John L. Sullivan Automotive Group, which oversees John L. Sullivan Chevrolet and Roseville Toyota-Scion in the Roseville Automall. "The leasing aspect has diminished over the years. That might change if interest rates go up."
Rodgers and officials at other Sacramento-area dealerships said they do not rely as heavily on auto leases as they did a decade ago. They said more diverse lineups of new cars and an emphasis on certified used cars – recent-model vehicles that are brought up to predetermined standards – have prompted the shift.
As have economic realities.
The harshest reality, particularly for U.S. automakers, has been decreased consumer demand for large pickups and sport-utility vehicles as gasoline prices have risen over the past year.
The sharp drop in sales for full-size light trucks has been accompanied by a sharp decline in residual values of those vehicles. That, in turn, has made automakers' lease portfolios less attractive to banks and finance companies.
Automakers have amassed some steep losses trying to sell their off-lease vehicles. The consequences:
• Chrysler announced last week that it will stop offering leases on its vehicles through its in-house financing arm.
• Ford Motor Co. is taking a $2.1 billion write-down on its financing unit, largely due to losses on its leases. The automaker said it will increase lease prices on some models.
• Wells Fargo & Co., a leading provider of lease financing outside the automakers, said it is exiting the auto-lease business.
• General Motors has told dealers it will continue to offer leasing incentives in August – but is scrutinizing its leasing practices in light of the severe drop in used car values.
Lease payments are based on the difference between the sale price of a new car and its projected sale price at the end of the lease. In past years, the difference between the two numbers has been relatively small, meaning monthly lease payments were typically less than the payments on a loan used to buy the car new. Savings of one-third were typical in the 1980s and 1990s.
Steve Pleau, president of Future Automotive Group, which oversees Ford dealerships in Sacramento and Roseville, said leasing is "not as big a segment for us as it used to be, but it's still real important" for other reasons.
"People who lease cars are far more likely to be loyal and go back to buy the same brand again," Pleau said. "That's why I was so surprised when I saw what Chrysler was doing."
Katina Rapton, general manager of Mel Rapton Honda in Sacramento, said Honda likes its dealers to have strong leasing programs "because they can get more consumers into their cars at a more equitable rate." Rapton said Honda likes leasing to be at least 30 percent of a dealership's business.
Yet even Honda – projected by U.S. auto experts to be the only major automaker that will report a sales increase for July – has taken its lumps in the leasing market. The Japanese producer recently reported a $230 million charge because of decreased values of leased vehicles returned to the company.
Area residents who drive leased vehicles said they consider the current market a mixed bag.
"I know that the leased (autos) are losing value, but so are the new ones," said Margaret Perry, a Citrus Heights resident whose household has leased three Fords in the past decade. "That's bad for the dealer, but just think how bad you'd feel if it was you stuck with getting all the money back on the car. That's one of the reasons we lease, to avoid that kind of hassle."
Andy Powell, a Sacramento construction worker who said he has leased a handful of General Motors vehicles since the early 1990s, said he was happy with his current pickup and the terms of the lease. He's not too concerned about what will happen when the lease is up.
"The car market always goes up and down, and they always figure out ways to make them affordable to the public," he said.
Call The Bee's Mark Glover, (916) 321-1184. The Associated Press contributed to this report.
