GMAC and Ford pull back on leases as credit tightens

DETROIT (Reuters) - GMAC and Ford Motor Credit disclosed steps on Tuesday to cut back on auto leases in a move that leaves automakers facing the risk of even more pressure on auto sales already at decade lows.

The steps by GMAC and Ford Motor Credit stopped short of Chrysler Financial's wholesale abandonment of lease financing that shocked the struggling carmaker's dealers on Friday.

Analysts said the steps could protect the balance sheets of the auto finance companies, but cautioned the new financial constraints could make a tough market even harder for the Detroit-based automakers.

"The pullback could provide another negative for U.S. auto sales this year," Deutsche Bank said in a note for clients.

GMAC confirmed it would no longer offer leasing incentives on vehicles sold in Canada.

Detroit-based GMAC, which ranks as the largest auto finance company in North America, would not comment on any steps it planned for the larger U.S. market just ahead of the crucial month-end close for July sales and its quarterly financial report on Thursday.

One dealer briefed by GMAC and Ford Motor Credit said the finance companies were taking steps to reduce the risk from losses on lease deals.

Ford Motor Credit said it adjusted its assumptions in pricing leases and would continue to offer them as an alternative.

'THROUGH THICK AND THIN'?

U.S. automakers and their financing companies have been losing money on leases because of the sharp decline in the resale values of trucks and SUVs in the face of record high gas prices.

Ford took a charge of about $1.8 billion in the second quarter for the lower resale values of trucks and SUVs coming off leases after terms that typically run three years.

Earl Hesterberg, chief executive of Group 1 Automotive (GPI.N), a major Ford retailer, said he was reassured that Ford Credit would support sales, even as it tightened lease terms.

"They're going to do some things to reduce their percentage of leasing, but I think Ford has understood more than anyone through thick and thin that there's a leasing market there for certain types of vehicles," Hesterberg told Reuters.

Automakers have used vehicle leasing as a way to clear inventory by enticing consumers with lower monthly payments. But the arrangement hinges on the leasing company being able to sell vehicles for near their forecast residual value when the contracts are up.

Because of the sudden premium on more fuel-efficient cars, resale values for light trucks have dropped by as much as 30 percent or more over the last year.

"Credit is tightening, so (auto financing companies) are not as flexible as before," said Raymond Ciccolo, president of Boston-based Village Automotive, a dealership group that sells GM brands Cadillac, Hummer and Saab. "It doesn't make sense to offer leases on the current terms."

Both GMAC and Chrysler Financial are now controlled by private-equity firm Cerberus Capital Management.

Cerberus bought 51 percent of GMAC from GM in 2006 and acquired the Chrysler finance arm when it bought the U.S. automaker from Daimler AG (DAIGn.DE) in 2007.

Chrysler Financial's announcement that it would suspend lease financing altogether prompted some analysts to question whether the struggling carmaker would lose more ground.

Fitch Ratings warned that Chrysler might not be able to maintain competitive incentive financing and cut the automaker's ratings to "CCC" on Tuesday, saying the cut-off could depress already sluggish sales.

"The big difference is that GMAC and Chrysler Financial are no longer controlled by the auto manufacturers themselves," said Hesterberg. "The reason the captive credit companies were created was to support sales in these tough times."

U.S. auto sales dropped 10 percent in the first half. Chrysler sales were down 22 percent, GM dropped 16 percent and Ford was off 14 percent.

(Additional reporting by Soyoung Kim, Poornima Gupta and David Bailey; Editing by Andre Grenon)