Why Auto Lenders Want To Call It Quits Many auto lenders are pulling back incentives to lease vehicles. Consumers don't want to lease trucks and SUVs anymore and the credit crunch isn't helping. Avoiding leasing is actually a good thing, says our personal finance expert.
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Why Auto Lenders Want To Call It Quits

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Why Auto Lenders Want To Call It Quits

Why Auto Lenders Want To Call It Quits

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Turning to the economy now, and another causality of the credit crunch and high gas prices is the car leasing industry. GMAC is North America's largest auto lender. It announced last month that it is ending incentives on car leases.


Other lenders like Chrysler and Ford are pulling back, too, thanks to the falling value of trucks and SUVs. The lenders have found leasing is now a financial pitfall for them. Here with us, Day to Day's personal finance contributor Michelle Singletary. Michelle, isn't leasing pretty popular these days?

MICHELLE SINGLETARY: It definitely is popular. It began to become more popular in the mid to late 1990s, and now, about 19 percent of vehicles driven out of showrooms last year were leased according to edmonds.com. And automobile leasing expanded about 21 percent between 2005 and 2006. So lots of people are thinking leasing is the way to go. Clearly, you know me, I'm like, buy rather than lease because really, what you're doing is your leasing something that you can't afford to buy.

CHADWICK: Well, leasing is not ending. What's ending is the incentives for leasing. So what is this going to mean for consumers?

SINGLETARY: That's exactly right. The auto lenders are pulling back from leasing because it is not as profitable, and that means all these incentives that they got to get you to lease are going to, you know, a lot of them are going to go away, which means your lease payments are going to be more expensive, especially on the larger vehicles because they are finding that, when they come back from the lease, they have to take less money for them. So that means leasing is not going to be as easy for people, which is a good thing.

CHADWICK: It's a good thing because you just think, you have to buy the car that you can afford, not lease the one that's really more than you can afford?

SINGLETARY: That's exactly right. Listen, leasing was sold because it is true that, on a month to month basis, some leases are less expensive than if you bought that exact same car. But that is short term thinking. If you plan your life financially long term, it's better to buy your car using a four year or less loan and keep it forever, until, you know, they push you off the road, or you're on a first name basis with the local tow truck drivers.

(Soundbite of laughing)

SINGLETARY: And then the money that you save in the ensuing years, you can bank that, so that the next time you need a car, you can pay for it outright. But I think people who are very conscious about trying to preserve as much of their wealth as possible know that it's better to buy than to lease and to buy a car that you can afford. It can be that all that you can afford is an 8,000-dollar used car until you build up your income to afford the car that you really want.

CHADWICK: Well, what about this? What about, as soon as you do buy that new car, you drive it off the lot. It loses, what, 20 percent of its value just driving off the lot. Every year, it's going to lose 15, 20 percent of its value, so you're buying a depreciating asset, aren't you?

SINGLETARY: That's right. You know, people bring this argument up to me all the time. Oh, it's a depreciating asset. You shouldn't put money in a depreciating aspect. It sounds really sophisticated, doesn't it? Let's look at it this way.

CHADWICK: Yeah. That's why I threw it in there.

SINGLETARY: Yeah, I know. Thank you, Alex. You're so smart. But listen, you don't rent your clothes. You don't rent your furniture. This is something that you're going to have a useful value for even after you pay for it. It's true that it loses it's value, but you are going to hold onto it because hopefully, you are going to keep it running well. You are going to do the regular maintenance. And if you keep your car long term, how much it's worth will not matter because you're not selling it. It only matters if you're going to sell it.

I keep my cars on average about 10 years, and when I'm done, I give it to someone who needs a car. The last car my husband and I had that was used, we gave it to my niece, who was a college student in Atlanta. And she's still using it a couple years later. And it's like a 10-year-old car. So if you're not going to have to trade this car, and which you shouldn't have to, then what it's worth over the years should not matter.

CHADWICK: Michelle Singletary, personal finance columnist for the Washington Post. She writes "The Color of Money" there every week. Michelle, thank you.

SINGLETARY: You're welcome.

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