Lenders Growing Cold To Auto Lease Market.AUTOMOBILE leasing has hit the brakes this year, as consumer demand softened soft·en v. soft·ened, soft·en·ing, soft·ens v.tr. 1. To make soft or softer. 2. To undermine or reduce the strength, morale, or resistance of. 3. and manufacturers and financing companies begin to see losses in their leasing operations. The market for leased vehicles has been hit hard largely because banks and manufacturers miscalculated the value of those vehicles after three years. As a result, fewer incentives are being offered to lease. The Southern California Southern California, also colloquially known as SoCal, is the southern portion of the U.S. state of California. Centered on the cities of Los Angeles and San Diego, Southern California is home to nearly 24 million people and is the nation's second most populated region, statistics on auto leasing mirror the national trend, said Tom Libby, director of consulting operations for J.D. Power & Associate's Information Network division. Down payments on leased vehicles in Southern California rose from an average of $2,775 per vehicle in the first quarter of 2000 to an average of $3,080 per vehicle in the first quarter of 2001, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. J.D. Power. The percentage of APR APR See: Annual Percentage Rate financing below 7 percent, which was used heavily in the new car market nationwide to lure lure the skin-covered object which runs on a monorail on a Greyhound racing track and which the dogs are schooled to chase. The lure must be kept 30 to 40 ft ahead of the leading dog so that the field is stretched out. buyers, declined from 30.2 percent to 28 percent for the same periods in Southern California. And the residual amounts, or the estimated value of leased vehicles, fell by 6.2 percent from an average of $16,805 per vehicle to $15,760 per vehicle. During the period of March through May 2001, 28 percent of all consumers obtaining cars at Southern California dealerships leased the vehicles, according to J.D. Power. That's down from 34.1 percent in the same period last year. The same trend is occurring nationwide, with 19.9 percent of consumers leasing vehicles in March-May this year, down from 23.7 percent in the year-earlier period. "A lot of funders, a lot of banks, have gone out of leasing because they ended up losing money," said Katherine Sparacino, executive director of the National Vehicle Leasing Vehicle leasing refers to leasing the use of a motor vehicle for a fixed or indefinite period of time. It is commonly offered by dealers as an alternative to vehicle purchase. Association in Burlingame, Calif.. "Sometimes when you put the residual value Residual value Usually refers to the value of a lessor's property at the time the lease expires. residual value The price at which a fixed asset is expected to be sold at the end of its useful life. high, payments are lower. But at the end (of the lease term), if you can't re-lease the car for the amount you invested, you end up losing money." Independent lessors have had difficulty getting financing from national and community banks, as well as from auto manufacturers' financing arms, Sparacino said. Leasing has also declined as prices on used cars dipped and new cars are adorned a·dorn tr.v. a·dorned, a·dorn·ing, a·dorns 1. To lend beauty to: "the pale mimosas that adorned the favorite promenade" Ronald Firbank. 2. with special incentives, said David McKay, director of auto finance at J.D. Power. But the leasing losses aren't expected to continue. "In the last year is when it really soured sour adj. sour·er, sour·est 1. Having a taste characteristic of that produced by acids; sharp, tart, or tangy. 2. Made acid or rancid by fermentation. 3. ," Sparacino said. "When the stock market took a dive is when it really started showing itself -- probably in the last 18 months. The trend is probably going to continue for the next 18 months. It will be like anything else. It will even itself out as those old leases are coming off. There will be a time when they will come to an end." The downfall in leasing, which is often lumped with used car sales, is a major blow to banks, which are being squeezed out of the new-car market. Dealerships, termed "captive captive said of naturally wild or feral animals kept in captivity for educational and scientific investigation with no attempt being made to domesticate them. " financiers, are able to provide greater reductions on APRs since they are subsidized sub·si·dize tr.v. sub·si·dized, sub·si·diz·ing, sub·si·diz·es 1. To assist or support with a subsidy. 2. To secure the assistance of by granting a subsidy. by automobile manufacturers, McKay said. "(Banks) can't compete with 0.9 percent financing," McKay said. But the percentage of new cars financed through captives dropped in the first quarter to 57.1 percent in Southern California from 67.9 percent in the year-earlier period. Among the possible factors: a nationwide financing incentive program on minivans spurred by Daimler Chrysler in the first quarter of 2000 that was not continued the following quarter.
Car Buying
Auto financing in Southern California.
1st Qtr. 1st Qtr.
2001 2000
Financed Sales
APR below 7 percent 29% 30.8%
Captive financing* 57.1% 67.9%
Average monthly payment $460 $439
Average down payment $6,025 $5,702
Leasing Activity
APR below 7 percent 28% 30.2%
Captive financing** 68% 71.1%
Average monthly payment $486 $463
Average down payment $3,080 $2,775
(*)Captive financing comes from dealership or manufacturer, as
opposed to bank or credit union
Source: J.D. Power & Assoc.
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