More Lenders Join Pullback on Auto Leasing

More and more auto financing companies and banks have cut back or stopped leasing autos. They’re not going anywhere near big trucks and SUVs. These lenders just have taken too many losses from auto leases or they are just in too much economic and credit trouble, reports and Business First of Columbus.

Extremely low resale prices have made leases riskier for banks and automotive financing companies and more expensive for car shoppers, said David Cole, chairman of the Center for Automotive Research in Michigan.
While some have cut back on leasing – Huntington and Cincinnati-based Fifth Third Bancorp have chosen not to offer leases on vehicles with eight-cylinder engines – other lenders such as Chrysler Financial, the financing arm of Chrysler LLC, and Wells Fargo & Co. have ceased leasing operations altogether.
Banks are taking the losses from all angles. They’re dealing with foreclosures and the subprime fiasco and they’re looking for a way to start making a profit again. When they lose money on auto leases, they have to cut that back or completely.
“The consumer is protected here, the guy that gets stuck with the problem is whoever it was leased from,” Cole said.
Leases must make economic sense for lenders, and segments that don’t must be reduced, said Lou Vitale, who oversees auto loans and leases for Fifth Third in Ohio, Pennsylvania and New York state. In early August the bank stopped making leases on Chrysler vehicles and automobiles with an eight-cylinder motor, he said.
“We’re trying to make sure we’re in the leasing business for a very long time,” Vitale said. “We have to have a portfolio balance.”
Wells Fargo also cited the bottom line in its decision to stop leasing.
“The prime auto lease business is no longer a strategic fit for us, partly because the returns are not acceptable,” the company wrote in its second-quarter earnings filing made with regulators July 16.
It’s unclear when, or if, auto financing businesses and banks will expand leasing again, Vitale said.
“Nothing is forever,” he said. “In a few years from now all these manufactures will have many more fuel-efficient vehicles and many fewer SUVs and pickups, and things will be balanced again.”
Much will depend on gasoline prices, Cole said.
“We could wake up in two to three months with $2.50 a gallon and people will forget what they said and go back to buying a pickup,” he said. “If the value of those used vehicles then jumps dramatically, we’re back into a different cycle.”