With the sales rates of pickup trucks and SUVs falling out of sight in recent months, Chrysler has found it necessary to take the dramatic move of ending all leasing.
Chrysler has suffered the sharpest drop in sales figures of any major auto manufacturer through the first six months of 2008 at 22 percent.
Thus on Friday, August 1st, it announced it would be suspending leasing. Unintentionally, this has become the ideal marketing gimmick.
The surge following the announcement has aided in the much needed sweeping out of 2008 models with nearly 100 percent of the sales being leases as consumers scramble after vehicles of their choice. Multiple dealerships in Michigan and the rest of the country stayed open till midnight trying to rid their inventory of as many vehicles as possible.
This surge, however, could also mean Chrysler has exhausted its sales potential for the months to come since consumers are clearly buying sooner than they would have preferred. Also, its is a costly move for Chrysler as competitors such as Toyota and Honda do not find it necessary to eliminate leases. And rivals Ford and GM, who are tightening their leasing practices, will continue to provide leases.
Chrysler will attempt to compensate by ramping up the incentives including longer term loans at lower rates. This cuts into profit margins and comes with its own host of risks as consumers start digging for the bargain-basement deals. This is literally a back-against-the-wall move that will leave Chrysler less capable in the future.
Regardless of the cost and risks, leases have become a liability due to plummeting resale values. Unable to unload used pickups and SUVs, dealerships are stuck with an excess of off-lease vehicles that will go for far lower than they had assumed. Ford announced it took a $2.1 billion write down with its leasing business. GM wrote down $716 million, and it would have been considerably higher if it weren’t for various prior arrangements. Chrysler has yet to disclose how much it has lost to leases gone bad.