The auto leasing industry is one that has slowly picked up steam through the years, evolving into a mainstream option to purchasing a vehicle that has been highly beneficial to customers looking for lower monthly payments, a short-term commitment and tax benefits.
But thanks to the recent credit crunch, the business has had to make quick adjustments that are leaving customers with less-than-perfect credit with one less option for their auto needs.
“Everything is going back to how it was in the old days when you had to have great credit scores and a down payment ready if you want to drive off in a car – and it’s no different when you’re talking about leasing,” said Will Churchill, co-owner of Frank Kent Motor Co. in Fort Worth. “If you’re trying to lease a car and you have a bankruptcy or repo on your record, you need to make sure you have a back-up plan because lenders aren’t taking risks these days.”
Like many industries, the auto industry has felt the crunch of the financial market’s tightening in recent months. Industry experts say leasing a car is often harder to attain financing for than purchasing one, because the lender is taking a bigger risk on the individual. Many dealerships have gotten out of the auto leasing industry all together, leaving a handful of third party leasing institutions to provide auto leases to many Americans who had grown accustomed to short-term auto leases.
But the decrease in competition hasn’t made the industry any easier.
Mike Hernandez, president of D&M Auto Leasing, said his business has held steady with individual customers, only seeing a slight decrease, but transactions have fallen harder in business fleet vehicle leases, which accounts for 15 percent of his overall business.
“Our fleet leases have had some trouble,” he said. “Businesses are having a hard time getting loans for fleet leases.”
The shift in the leasing industry is also affecting those who are mid-lease and have lost a job or have filed for foreclosure.
Miami-based LeaseTrader.com is one leasing subcategory that has benefited from such situations.
The lease-for-trade company recently reported a 24 percent rise in customers listing their vehicle for transfer due to job loss and their desire to downsize into a more affordable car.
LeaseTrader.com matches car shoppers with individuals looking to escape their auto lease. Shoppers can pick up the lease for no down payment.
The company reported 35,000 transactions in 2007 and looks to top out at 45,000 transactions in 2008.
“I would attribute a lot of that growth right now to the economic situation that is unfolding,” said John Sternal, vice president of marketing communications at LeaseTrader.com.
Sternal said high gas prices, foreclosures and the job loss are weighing heavy on individuals whose first reaction is to cut monthly expenditures.
“Like the housing market, people taking over many of these vehicles are getting some great deals because there is no down payment and the remaining terms of the lease are shorter than through a dealer,” said Sergio Stiberman, CEO of LeaseTrader.com in a statement.
Churchill said the auto industry’s similarities with the housing industry don’t stop at good deals.
“Like the housing market over the past few years, things have gotten pretty out of hand in the auto industry,” Churchill said. “People with mediocre credit scores were qualifying for pricey vehicles in both leasing and buying, but now they’re not qualifying and it’s changing the whole dynamics of the industry.”
Churchill said the credit crunch within the past few months has made lenders leery of making loans to anyone without top-of-the-line credit scores.
“We’re getting back to where we should have been. If they have a bankruptcy on their credit report, they shouldn’t be able to get the same loan as someone with great credit,” he said. “The market is re-adjusting and getting back to where it needs to be – where you have to have money to put down on a car so you have equity in it.”
Churchill said he expects the trend to have an impact on the pre-owned auto business.
“When they can’t qualify for a lease or new vehicle, they’re looking at pre-owned,” he said. “Our pre-owned values have already seen an increase.”
This story posted by LeaseTrader.com, the automotive service company that lets people transfer out of their Car Leases early. If you're looking to swap a lease or transfer out of your car lease, please visit www.leasetrader.com