GM jumps back into leasing
Leases have returned to some General Motors showrooms this month and could resume at more dealerships later in the year, if everything works out.
Right now, they're available in just five states: New York, New Jersey, Connecticut, Ohio and Michigan.
They're being offered on just a handful of models: the 2009 Cadillac CTS, Chevrolet Malibu and Traverse; the 2010 Cadillac SRX, Buick LaCrosse and Enclave, GMC Acadia and Chevrolet Equinox.
And they're being provided through US Bank, not GMAC, the automaker's traditional financing company.
GM says the cost is "expected to be very competitive" and the leases won't require a security deposit. That should reduce the up-front costs by at least a few hundred dollars.
US Bank is only committed to the leasing program through Aug. 31.
But if this pilot program is successful -- which means customers are willing to pay enough to ensure the leases are profitable -- it probably will be expanded to more states and more vehicles.
Leasing was once one of the most popular ways to finance a new car or truck.
When you buy, you pay the car's entire price, interest on any loan you take out to finance the purchase and sales tax on the entire price.
When you lease, you pay for the value the car loses while you drive it, interest on the loan the leasing company took out to buy the car and sales tax on your part of the purchase price.
As a result, it was often possible to lease a car with a lower monthly payment than if you tried to buy it.
That advantage was even more pronounced when automakers subsidized the deal to boost the sales of big pickups and sport-utility vehicles.
Consumers found they could lease a $30,000 or even $40,000 truck that they couldn't possibly afford to buy.
At its peak in the late 1990s and early 2000s, almost one in every four new cars and trucks was being leased.
But when gas hit $4 a gallon last summer, the resale value of pickups and SUVs plunged.
Lenders lost their shirts when off-lease vehicles sold for thousands less than they expected, and so they stopped offering leases on many models.
They raised the monthly payments on the few models they were still willing to lease so much that, in most instances, the leases made no sense.
It was cheaper to take out a conventional auto loan and buy the car or truck.
Leasing a domestic car or truck from GM, Ford Motor Co. and Chrysler LLC became almost impossible and remained so for the past year.
When GMAC dropped out of the leasing business last summer, for example, the percentage of GM cars and trucks being leased fell from about 17% to a paltry 1%.
Leases were more costly, but still available, for many foreign models, especially luxury cars.
Then the Japanese and European manufacturers were forced to cut back as the recession caused auto sales to plummet. The carmakers could no longer afford the subsidies that kept many lease payments artificially low.
They could only promote lease deals on a few models at a time.
We're starting to see that change a little, too, as some foreign car companies are using cheap leases to clear out 2009 models.
Honda, for example, is offering low-cost leases on 2009 Accords, Civics and CR-Vs, and Volkswagen has lease deals on virtually all of its 2009 models.
But everyone in the industry is watching what happens at GM this month.
Its effort will tell us whether the auto market is returning to normal and bringing big-time leasing back with it.
If you think leasing might still be a good option for you, our "5 questions to ask before leasing" can help you make sure.
If you're ready to lease, take a look at our strategy for finding the best deal.