Ford, GM Cutting Back On Leasing

Ford informed its dealers that it is raising the price on leases of its most profitable trucks and SUVs due to the "extreme losses" its lending arm is taking on these vehicles, reports the Wall Street Journal.

Also, GMAC LLC, which is minority-owned by General Motors Corp., has decided to stop leasing to consumers who are in the lowest two of six credit rating categories, said George Fowler, general manager of Superior Buick Pontiac GMC in Dearborn, Mich.

Yesterday, we reported that Chrysler Financial is no longer leasing vehicles. So why are the Big Three cutting back or completely cutting leasing?

The WSJ obtained a memo saying that Ford officials informed dealers "due to extreme losses Ford Credit is taking on off-lease vehicles, it will be necessary for Ford Motor Credit Company to adjust residuals mid-quarter on the following vehicle lines."

Ford is expected to make several 2008 model year trucks and SUVs "lease proof," according to the company. Basically, prices will be so high on these leases that customers won’t be willing to agree to terms, according to a dealer briefed on the matter.

The changes will take affect August 1 on the Ford F-150 and Super Duty pickups and the Ford Explorer and Sport Trac SUVs.

If you were considering leasing these particular trucks or SUVs, you’ve got two more days to do it.

GMAC will stop subsidizing leases in Canada effective August 1. Chrysler Financial will stop leasing August 1 as well. You can still lease a Chrysler vehicle though, but just not through Chrysler Financial.

When a consumer leases a vehicle, they turn it back in to the dealer when the lease period is over. When these vehicles come off lease, mostly trucks and SUVs, they are worth considerably less than what was originally predicted in the lease agreement. Resale values of these vehicles have just plummeted.

Lease terms are based on an assumed resale value of a vehicle when the lease expires. If the value of the leased vehicle falls more than expected, auto lenders are forced to take big losses.