Chrysler Financial announced recently that it’s getting back in the leasing business, after pulling out when the economy tanked last year.  And, while GMAC (who handled the leasing for GM brands) never completely quit the game, most of what they offered consumers was so ridiculous no one took them up on it—which was probably as intended.

The simple fact is lease companies and divisions, which are supposed to look to the future, too frequently base everything on current conditions.  The biggest two factors in a lease’s payment—outside of the price of the vehicle itself—are the lease factor (equivalent to the interest rate on a loan), and the residual value.  That’s the crystal ball part of the equation, and millions are spend by companies like Automotive Lease Guide, and the manufacturers and banks themselves, to try to figure out what a particular car, truck, or SUV will be worth in three or four years.

Giving them the benefit of the doubt, this economic crisis was so severe, no one really knew where we’d be as a country 36-months hence, or which companies might still be around!  But having seen this type of thing happen twice before in the eighteen years I’ve been brokering cars, I’m a bit cynical.  Car companies and dealers get addicted to the additional volume leasing creates, and the higher retention rate of lease clients.  So the lease terms get better and better for consumers: residuals get stronger (leading to lower, more competitive payments) and leasing gets promoted more and more.

Then the bubble bursts; the vehicles leased years ago come to auction, and the backers (whether financial institution or car company) take a loss as these rides go across the block for less than the amount predicted.  Losses mount, and someone gets scared and either lowers residuals on new leases—often a knee-jerk reaction—or they get out entirely, as did Chrysler and a lot of banks.

The irony is that in 2009, used car prices hit historic highs as fewer new car sales, and smaller rental fleets, lowered the available pool of vehicles at the exact same moment more people were switching from new to used purchases.  Which meant many of those residual values turned out to be conservative.  Funny business.

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