GMAC and Ford pull back on leases as credit tightens

By Kevin Krolicki

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.