Chrysler Boosts Incentives To Offset End Of Leasing

[rickaren]

August 01, 2008: 12:02 PM EST


DETROIT -(Dow Jones)- Chrysler LLC, fresh out of the leasing business, is boosting its incentives across its product portfolio as it continues trying to help dealers clear more inventory.

The auto maker will give up to $2,000 cash back on top of offers already in the market, extend discounted six-year financing to more products and offer $750 to lease customers that can be used toward the purchase of a new vehicle.

"This is an unprecedented shift to make owning as affordable as renting," said Chrysler spokesman Stuart Schorr, who confirmed the incentive changes. "The offers today help lower the monthly payments associated with retail purchases, giving consumers a better reason to buy."

Chrysler's sweetened offers come a few hours after the auto maker stopped offering leases through its Chrysler Financial arm because of steep declines in the residual values of pickup trucks and sport-utility vehicles. Sales of large vehicles have fallen precipitously in recent months amid high fuel prices and weakened consumer confidence, which has taken a big toll on Chrysler and its domestic rivals.

Some Chrysler dealers experienced a flurry of business in recent days as consumers rushed to get a new car with a lease before the tool was no longer available. Dealers, meanwhile, were holding out hope that Chrysler would come through with big incentives.

"The cash back is a help especially for some of us that relied on leasing to drive sales," said a Detroit-area dealer. "The question is whether this can be sustained beyond August."

Chrysler announced a week ago that it had decided to suspend leases. In recent days, Ford Motor Co. (F) and General Motors Corp. (GM) have taken steps to significantly tighten their leasing practices.

Ford said last week that it wrote down $2.1 billion owing to leases in the second quarter, a key factor in the company's $8.7 billion loss for the period. GM, which on Friday reported a $15.5 billion loss for the latest quarter, said that declining residual values affected its second-quarter numbers to the tune of $2 billion.

The reduced availability of leasing, which has typically accounted for about 20% of new-car sales in the U.S., leaves dealers without a key tool that enables many buyers to get into vehicles they couldn't otherwise afford. Lease payments are usually lower than monthly financing costs for purchases.

The changes come at a difficult time for the auto industry in the U.S., where sales are at their lowest levels in 15 years and concerns are rising about the ability of auto makers to weather the downturn.

Auto makers will report their July sales figures Friday afternoon, and industry watchers will be looking for comments from Chrysler's rivals about possible new incentives to compensate for fewer leases.

LINK:Chrysler Boosts Incentives To Offset End Of Leasing