Chrysler financial arm to stop leasing vehicles

By Poornima Gupta and David Bailey

DETROIT (Reuters) - Chrysler LLC said its financing arm would stop offering vehicle leases to U.S. consumers, a sharp break in strategy in response to tighter credit and the plunging resale prices for gas-guzzling trucks.

The abrupt announcement on Friday afternoon was the latest sign of the stress on Chrysler from an industry downturn that has hit all automakers. Earlier this week, Chrysler said it would cut 1,000 white-collar jobs by the end of September.

The move comes as Chrysler Financial's $30 billion credit facility, backed by loans to consumers and dealers for vehicle purchases, is up for renewal in early August and the lender could see its borrowing costs rise amid the continuing credit market turmoil.

U.S. auto sales have dropped to their lowest level in 15 years, and the sudden premium on fuel-efficiency in the face of record gasoline prices has forced consumers to abandon SUVs and other light trucks.

The result has been a sharp decline in the resale prices for light trucks that has forced major automakers and related lenders to take large losses to write down the value of leases on those once-popular vehicles.

"You have got the dropping of the used car vehicle prices. You have got people that are struggling with the credit crunch," Chrysler Financial spokesman Bill Porter said. "It is very difficult right now to offer competitive lease products. So we are switching our strategy."

Dave Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan, said the credit crisis has put "an enormous amount of pressure" on automakers' captive finance arms, which have been key profit centers in the past.

Leasing was very popular with automakers in the earlier part of the decade, when the U.S. auto market was booming, and automakers were able to boost sales by offering attractive lease programs.  Continued...