A couple of weeks back, I wrote about the benefits of leasing a new vehicle over purchasing, noting that incentives available on leases to be one of the major upsides. Well, it looks like that may not be the case much longer on some vehicles, as the Big Three are all eliminating lease incentives and may even move towards pulling out of the lease business altogether.
This is not surprising- a lease transfers the risk associated with resale values from the consumer to the finance company. The Detroit automakers rely heavily on large vehicles like trucks and SUVs, and with gas prices climbing and increased emphasis on fuel efficiency the resale values of these vehicles has dropped significantly, leaving lease companies to take back large vehicles with market values well below the residuals calculated when the lease was signed.
From a consumer perspective, a properly-negotiated lease is a no-lose proposition. If the vehicle is worth less than your agreed buyback, you return the keys. If it is worth more, you can use the money you saved over the lease term to buy it out, and even sell for a profit if you’re looking for something different. If you leased an SUV or truck within the last few years, you’re well ahead of those who opted to purchase and are now left with vehicles worth 10%+ less than anticipated. Not a problem if you intend to run your vehicle in to the ground, but if you had planned on replacing within the next little while, you’re going to take a bath.
The Big Three find themselves in a tough situation- the US economic downturn, gas prices, and their reliance on less efficient vehicles have put them at a competitive disadvantage. The problems they face with lease returns are not shared to the same extent by their European and Asian rivals, and these rivals will likely continue to offer attractive lease deals, further compounding Detroit’s problems.
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