Chrysler differs from other major auto makers in Canada in that it does not own a separate financing company that allows it to offer leases and loans, so it must work through third parties.Jeff McIntosh/The Globe and Mail
Chrysler Canada Inc. is jumping back into leasing for the first time since 2008, raising the competitive stakes another notch in an auto market already awash with financing and leasing incentives.
Leasing is returning to auto makers' sales arsenals after having been abandoned by many companies in 2008 when the asset-backed commercial paper market collapsed amid the liquidity crisis that led to the Great Recession.
The Chrysler move comes as consumers rack up auto-related debt while auto makers boost incentives in the Canadian market – which has fallen for two straight months after hitting the second-highest level on record in 2012.
Auto companies are now gearing up for the crucial spring selling season that generates about 40 per cent of their annual deliveries.
"March, April, May you have to nail or you lose your year," said industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc. of Richmond Hill, Ont.
About 23 per cent of Canadian vehicle deliveries were leased last year, up from the trough of 6 per cent in 2009, but well off the leasing peak hit in 2007 when it was in the high 40-per-cent range, Mr. DesRosiers said.
When leasing was out of favour, auto dealers lengthened the terms on loans to buy vehicles in order to keep monthly payments low, a key demand of consumers. Japan and South Korea-based auto makers are now heavily advertising six-year and seven-year interest-free loans, often with no down payment, after dismal sales results in January and February.
Interest-free loans of at least six years are common, but Mr. DesRosiers noted that sales slumped for Hyundai Auto Canada Corp. and Kia Canada Inc. in the first months of the year, an unusual predicament for those two companies, which have surged in the past 10 years. He also pointed to Japan-based auto makers, whose market share dipped to 30.8 per cent in the first two months of the year, down from 33 per cent in the same period in 2011 and well below their annual peak of 37.9 per cent hit in 2009.
"There is no question the Japanese are fighting back," said one dealer who owns a number of Japan-based franchises but insisted on anonymity. That response to slow sales includes seven-year, interest-free loans on some models from Nissan Canada Inc., which matches what Hyundai is offering on some car and crossover lines. Toyota Canada Inc. is offering six-year, interest-free loans on Corolla compacts, while Kia buyers can get a five-year loan with no interest on Sorento models.
In returning to leasing, Chrysler has an arrangement with Westminster Savings Credit Union of New Westminster, B.C., which set up a leasing arm in 1996. Chrysler differs from other major auto makers in Canada in that it does not own a separate financing company that allows it to offer leases and loans, so it must work through third parties.
New leasing incentives from Chrysler, which is leading the sales race in Canada after posting sales increases in January and February, include $99, twice-a-month payments on its Dodge Dart compact.
In a presentation to dealers, Chrysler said vehicles can be leased for one to five years, and payments can be made weekly or twice a month, as well as monthly.
Mr. DesRosiers said twice-monthly payments are a marketing tool that allows companies to advertise lower payments.
The lengthening of auto finance terms has caused automotive debt to mushroom, even as Bank of Canada Governor Mark Carney and federal Finance Minister Jim Flaherty warned that the personal debts of Canadians are getting out of hand and growth in mortgage debt is slowing down.
Data released Monday by consulting firm J.D. Power and Associates showed that 63 per cent of loans taken out this year to buy new vehicles were longer than six years. In 2012, loans longer than six years represented 57 per cent of new loans.