General Motor Corp.’s financing unit informs Canadian car dealers it will end incentivized leasing in Canada Aug. 1 due to a funding glut and the declining values of vehicles. The incentives include reduced initial payments and lower interest rates.

“There are a number of factors, including the greater market conditions in the country,” says Gina Proia, a spokeswoman for General Motors Acceptance Corp. in New York.

Jerry Revenberg, at Gus Revenberg Pontiac Buick GMC Hummer in Windsor, ON, Canada, says the move is a “good one for GM,” because it will cause more customers to buy, rather than lease.

“GM also announced 0% (financing) for 72 months on most of its cars (being purchased), along with cash incentives,” he tells Ward’s. “The majority of our customers would prefer to own the vehicle anyway.”

Revenberg says having more customers buy their vehicles, rather than lease, should provide more access to trade-ins and drive more traffic for the store. “The only negative is that buying cycles probably will get extended with the 72-month loans. It might have been better to offer 0% at 60 months.”

GM declines to say whether it plans to follow in Chrysler LLC’s tracks and eliminate vehicle leasing in the U.S. Chrysler announced July 25 that its financing arm will exit the leasing business to focus on supporting purchase customers, saying the economic advantages of leasing have disappeared.

“We haven’t announced anything in the U.S.,” Proia says of GMAC.

Several U.S. dealers tell Ward’s there has been no word from GM regarding a discontinuation of leasing. Nor is there any gossip among dealers.

GM sold a 51% stake in GMAC two years ago to an investment consortium led by Cerberus Capital Management LP, which also owns Chrysler. Cerberus did not immediately return calls seeking comment.

Last week, Ford Motor Credit Co. took a second-quarter charge of $2.1 billion related to residual values on its lease portfolio, and the U.S. financing arm of German auto maker BMW AG took a $400 million charge in the first quarter for vehicles coming off lease.

After slowing in popularity during the early 1990s, leasing roared back with the boom in pickups and SUVs. But with this year’s high gasoline prices pushing consumers towards more fuel-efficient passenger cars, residual values for light trucks are falling sharply and making it a less attractive option for captive financing units.

But while exiting the leasing business would reduce the risk for the financial arms, some analysts say it also could send car buyers to foreign brands with historically higher residual values.

Automotive Lease Guide Inc., which provides residual-value forecasting to the automotive industry, significantly repositioned its forecast this week, increasing the value of compact cars with high fuel economy, including hybrids, by an average of five percentage points compared with 2007.

Residual values on fullsize pickups and fullsize and midsize SUVs have been lowered by an average of eight percentage points, compared with year-ago.

For example, ALG now expects a $15,000 compact car with a 36-month residual value of 45% in 2007 to retain 50% of its value after three years and says monthly lease payments would fall about $20. But the residual value of a $42,000 fullsize SUV slides 8.5 percentage points and the monthly lease payment is estimated to rise by roughly $100.

James Clark, editorial director for ALG’s twice-monthly publication of residual values, says GM’s dynamics are slightly different than Chrysler’s.

“GM has products that absolutely need a lease program,” Clark tells Ward’s. Unlike Chrysler, GM sells products under dedicated luxury brands – Cadillac, Saab and Hummer – where leasing makes the vehicles affordable to more consumers.

Clark says GMAC could drop leasing on fullsize pickups and SUVs, because it faces the same cost pressures in those segments as Chrysler Financial. “But I would be surprised to see an all-out elimination of their leasing business.”

According to ALG’s sources, leases accounted for 40% of Cadillac’s volume in 2007, 51% of Saab sales and 38% of Hummer’s business. Other leasing figures include Buick (16%), Pontiac (23%), Saturn (18%) and GMC (10%). Leases accounted for 20% of Chevrolet cars and 11% of truck deliveries. Leasing for all GM brands rose by one or two percentage points.

ALG year-on-year residual values fell sharply on fullsize SUVs, including the Ford Expedition (12.2 percentage points), Chevy Tahoe (10.4 points) and Chevy Suburban (9.5 points). The greatest gainers were subcompact cars, including the Honda Fit (10 points), Chevy Aveo (9.3 points) and Hyundai Accent (8.5 points).

ALG does not expect used-car prices to return to 2007 levels, unless pump prices fall below $3 per gallon for at least one year.

GMAC releases its quarterly earnings Thursday, and GM reports U.S. sales Friday.

– with Cliff Banks