FINANCE FIRMS FIRMLY INTO LEASING

Leasing is a powerful driver of the new-vehicle sales boom, helping U.S. dealers move a record 5.8 million new cars and trucks in the first four months of this calendar year.

The growing number of vehicle lease providers attests to the power of leasing as a mover of new and used vehicles.

DaimlerChrysler Corp.'s sales and marketing vice president Jamie Jameson predicts no early letup in demand with 25%-30% of customers now leasing.

"Those people are going back to dealerships every two to three years, and they don't walk home," Mr. Jameson says. "They drive home in a new leased vehicle."

John Culver, of Parks Inc., Augusta, KS, a Chrysler-Dodge-Jeep store near Wichita, says Dodge Durangos and Jeep Cherokees would have been especially difficult to move against competition in March and April without lease incentives from DaimlerChrysler Financial and other F&I providers.

Lease incentives refer to low monthly payments to help offset high residuals, as well as minimal security- deposit and "cap cost reduction" requirements.

The National Vehicle Leasing Association heard predictions at its annual conference in May of continuing involvement of banks in vehicle leasing plus gains in on-line leasing and financing in the next five years.

Bank lessor consultant Tad R. Yoder, of Newark, DE, told the conference that banks realize that "dealers expect competitive programs, as well as efficient and friendly service in the areas of credit approval, funding and payoffs."

Mr. Yoder says residual setting "is probably the biggest risk taken on by bank lessors in today's market environment."

Banks know, he adds, that pressure for high residuals could cause huge "back end" losses at termination points if used-vehicle values dive, so "responsible bank lessors are responding to today's demand by setting aside substantial portions of monthly income streams to cover any future residual losses."

Survey firm CNW Marketing Research predicts that on-line leasing could exceed $40 billion by 2005. It's now about $5.6 billion. The firm recommends that dealers and lessors respond to the anticipated jump by establishing a webpage site for leasing customers and contact customers by e-mail rather than conventional mail as their leases wind down.

Information on renewing leases for new or preowned vehicles should be available, with payment and vehicle data on the leasing page, says CNW.

The rising interest in leases was noted by GMAC, whose SmartLease count jumped 28.7% last year to approximately 753,000 out of a GM sales total of 4,977,609 new vehicles.

Most of these leases originated with top SmartLease dealers, says Michael McHale, GMAC remarketing director, with the percentage of SmartLease customers rising to one in six.

At Ford Credit, the number of leased vehicles leveled off at 1,065,000 in 1999, down slightly from 1,138,000 in 1998 and a peak of 1,206,000 in 1997. The average monthly payment of retail lease contracts purchased by Ford Credit in 1999 was $380 and the average original term was 31 months.

As Ford Credit last year implemented a shift in emphasis in sales support from lease financing to special low-rate installment sale loans, competitive bank and captive financing lessors stepped up their attempts to gain more Ford and Lincoln Mercury dealer business.

"Ford Credit wants to reduce their residual loss exposure, but it's a wide-open market for all lease providers and that's a good thing for Ford sales," says one Ford dealer.

Among captives aggressively seeking more Ford and outside-brand lease business are DaimlerChrysler's debis financial services and GMAC for non-GM brands handled by GM dealers.

JM&A/World Omni, GE Capital and Bank One are also pursuing lease business nationwide among all brands.