How do auto companies salvage a financial loss from leasing in a weakening economy?

Chrysler’s plan: abandon the lease business. General Motors’ plan: keep the lease option available.

Chrysler announced Aug. 8 it is offering new finance incentives, including up to 40 percent off the manufacturer’s suggested retail price and 72-month finance deals, on eligible vehicles through August.

Eligible customers can also receive zero percent financing for 72-month deals on a range of trucks and sports utility vehicles.

Chrysler’s aim, according to Jim Press, vice chairman and president, is “to make buying as affordable as leasing.”

“Chrysler has repackaged incentive spending typically spent on leasing into improved financed purchase deals to lower monthly payments on select vehicles,” he said in a news release.

“[Chrysler’s 2008 model-year clearance] is probably one of the largest deals ever announced in the truck business,” Mark Sidley, Porterville Chrysler president, said. “This year [clearance sales are] better than other years. Business is pretty swift. As time goes, inventory starts getting lower and lower.”

Sidley said he believes business will peak at the end of the month, just before the clearance deals close out.

On the other hand Paul Curtis, general sales manager at Porterville Merle Stone Chevrolet, said he feels all auto companies will have to wait for the economy to settle before seeing steady business.

Because of a weak economy and high gas prices, “the reality is sales are down in every facet of the business,” Curtis said. That is, they are down as compared to previous years.

Truck and SUV manufacturers are especially feeling the woes of high gas prices; smaller vehicles with high fuel economy and electric cars are in greater demand now, he said.

“[General Motors] is moving as quickly as they can to accommodate what the public wants. Not replacing all trucks and SUV’s, but getting up to par with what the public is looking for.”

However, Porterville Chrysler sales jumped this month – with the new deals – according to Sidley. The reason is people are now buying more, as opposed to leasing.

According to Sidley, “the leasing business has gone down in the last five to 10 years. Every manufacturer has lowered their residuals [and] I think some of the companies are getting out of the business. “So when [Chrysler] announced these deals, it was a breath of fresh air,” he said.

But, according to Curtis, “there is still a big place in the [auto] business for leasing. In my opinion, leasing is the best way to buy a car.”

Where Chrysler and some other manufacturers are straying from the leasing business, ”that is just a natural evolution of what is going on in the economy,” he said. “Four years ago, we had a strong economy, strong residual values. And now the economy is down, so we had to change.”

During the past few years, larger vehicles, when leased, would depreciate in value by the time they returned to the manufacturer, according to Curtis. The return value was not the same as the residual value.

“That is where [manufacturers] got hurt. The residuals were artificially high [a few years ago]. The factories were taking the hit so now they have to adjust they’re leases,” he said.

But not all manufacturers, he added. “GM is not getting rid of leasing. They’re just making them more realistic.”

“I think it is really important that you have all the financial options available to [your customer]. You have to think: ‘How do I get this customer what they need?’ rather than, ‘how can I make a sale?’”

Chrysler is still offering a Lease Loyalty incentive up to $750 to returning lease customers who purchase an eligible new vehivle. In addition, the disposition fee, up to $425, which covers the cost of transportation and other procedures to resell a leased vehicle, will be waived.

These incentives were much higher before the August deals, Porterville Chrysler general sales manager Jack Copus said, and soon will not be offered. The company is phasing out lease incentives until it is out of the leasing business.