Chrysler announced that it is getting out of the leasing business. It cannot, apparently, find lenders that will continue to supply money to this part of its business. Similarly, Ford and GM continue to burn through capital and will or are facing similar realities.
Leases of automobiles and trucks account for something on the order of 20% of the U.S. market. The lease holders permit the monthly rental (lease) of the vehicle and expect to be able to recover the vehicle and resell it for more than they have invested in it. This carries risk, and it is that risk that seems now to be threatening at least this portion of sales activities. The risk is that the vehicles owned by the leasing company will lose value faster than the leasing company expected and that the leasing companies will be "upside down" when the time comes to sell off the vehicles that come off lease.
"Upside down" is a phrase that has become familiar to many consumers of autos and trucks. That happens when the vehicle purchased devalues more rapidly than the loan repayments reduce the amount owed. The term has typically been applied to the individuals who purchased a vehicle and learn, at the time they hope to purchase a new vehicle, that they are the owners of a vehicle for which they owe more than the vehicle is worth. The SUV marketplace is full of "upside down" deals given the cost of fuel and the effect that has had on resale prices.
Where will this lead? Well, it will certainly have a lingering effect on individuals who find themselves in an "upside down" situation. They'll either suck it up, buy a new vehicle and take extended payment terms, or they'll drive what they have for another year or two or three. The magic for the auto industry has been the short-sightedness of the typical consumer. If we can afford the monthly payment, we do the deal. We do not look out to the end of the term with any thoughts about where we'll be financially. We just want new wheels and we're gonna' get 'em.
If consumers continue to be pinched with rising costs on virtually all fronts, something more will have to give. If it is the purchase or lease of a new vehicle, that will continue to exacerbate the condition of the auto industry in general. How much more resiliency is left in the auto industry? What more will it take to actually cause a GM or a Ford or a Chrysler to go out of business?
