It’s getting harder to find a car to lease these days. Chrysler’s financial arm recently pulled out of the car leasing business, and Ford Motor Credit, GMAC and many large banks also have announced pullbacks.

The reason? Lease financing companies, particularly the Big Three automakers’ captive finance arms, are being pummeled by the falling residual values of trucks and SUVs coming off lease, which have fallen as much as 20 percent in just the last few months.

The impact? If you’ve got excellent credit — 700 credit score or above — and are looking to lease outside of the Big Three, you’ll likely still qualify for a decent deal. Otherwise, you’ll either be out of luck or will face much higher lease payments.

“The subsidized car leases from the Big Three that gave buyers stunningly low payments for two or three years won’t be out there any more,” says Jack Nerad, executive editorial director and executive market analyst with Kelly Blue Book’s online arm, kbb.com. “You can still qualify for a lease if you want to lease and have good credit by going through a bank or credit union, but the deals that were previously available with such low monthly payments are gone.”

For most consumers, this means that buying just got more attractive than leasing, especially if you’re looking for a low monthly payment and have excellent credit. Low to zero percent financing offers for 60- to 84-month loans are available and serve the Big Three’s aim of transferring the potential risk of falling residual values to consumers.

The scoop

It’s no secret that the Big Three are in trouble — a combination of factors including high gas prices and falling home values have lead to the bottom dropping out of the SUV and truck markets, which these automakers relied upon for much of their profits. To stem their losses, Detroit is taking action:

What the Big 3 are doing:
  • Chrysler Finance is exiting the leasing business altogether.
  • Ford is still leasing, but pulling back significantly in writing truck and SUV leases.
  • GMAC is tightening leasing underwriting standards, meaning fewer customers will qualify for leases.

In the short term, these moves may help limit Big Three losses on leasing, although some question whether limiting customer’s options is ultimately a good idea.

“Consumers are looking for more flexibility and options in terms of acquiring vehicles, so this seems like a hasty decision on the part of the Big Three,” says Brad Neigel, a senior analyst with Aite Group in Boston. “Ultimately, by offering fewer options, they could be driving customers away.”

This doesn’t mean that you won’t be able to lease a car, SUV or truck from General Motors, Ford or Chrysler. Big three dealers will continue to offer lease financing, but on a less attractive basis. Foreign car makers have no such constraint and will likely offer a full range of leasing options, but haven’t historically offered as much of a discount on leases as the Big Three.

Banks, already reeling from subprime mortgage losses, are also taking hits on falling residual values. Among large banks, Wells Fargo & Co. is exiting the leasing market and Chase Auto Finance will no longer write leases for Chrysler models. Many banks and credit unions are still writing leases, but are generally tightening underwriting standards.

Buying vs. leasing dynamics

While leasing grew in popularity during the past 10 years, only about 20 percent of all drivers lease, while 80 percent buy. This ratio could tilt further towards buying as leasing terms grow less favorable and buying terms grow more favorable. The only hitch is that the lowest payments will generally be on long-term loans in which buyers are likely to owe more than their car is worth for most, if not all, of their loan period.

To make loan payments comparable to leasing payments, lenders are likely to further extend terms, says Bill Vogeney, chief lending officer at Ent Federal Credit Union in Colorado Springs, Colo. However, this strategy is likely to backfire in the long term, as borrowers will “upside down” on their cars longer, forcing them to hold on to their cars for a greater period of time than they normally would, he adds.

A solution to that problem is for financing companies to roll over a consumer’s debt from their old car loan into their new loan, says Neigel, which is already happening in some cases. While this strategy can keep you in a newer car, it’s not a great idea, as you will continue to make payments on an asset that is worth less than you owe.

Nerad expects financing companies to unveil additional creative financing options, which could include balloon payments at the end of a low-payment loan period or a change in leasing terms that would leave buyers on the hook for a drop in residual values rather than the leasing companies.

“If you’re offered an unconventional financing arrangement, read the fine print and beware,” he says.

Other incentives will also be on the table, such as larger initial discounts and cheaper gas, as is the case with a recent Chrysler incentive offering $2.99 gas for three years when buying qualifying vehicles, notes David Thomas, a senior editor with Cars.com. Car manufacturers are attracted to these incentives because they can quantify the cost better than the future value of a car coming off lease.

Finding a Lease

Die-hard car lease fall into two camps: those who want a new car every two or three years and those who want a low payment. You may be out of luck on the low-payment front, but if you still want to lease so you can avoid maintaining a car, you can find financing, especially if you have good credit. Also, better leasing deals may be available on smaller cars that are more likely to hold residual values, says Scott MacMillan, a commercial representative for Nielsen Automotive Group in New Jersey.

Going forward, the best strategy to find a competitive lease arrangement is to shop around for the best lease terms before you walk into a car dealer, just as you would shop around for a loan commitment, Nerad says.

“A wide variety of national and regional financing companies, banks and credit unions are still offering leases and you can shop online for terms in many cases,” he says.

However, the lease financing market is not likely to expand beyond the players that are currently involved due to the expense and uncertainties of the leasing business, notes Neigel.

“Many big banks have never made much money on leasing and starting a leasing business is a difficult endeavor,” he says.

Another option is lease-trading sites such as Lease Trader  and Swap A Lease, which are companies that serve as intermediaries between consumers who want to get out of a lease and those seeking to get into one. Many financing companies and car dealers also offer vehicles for lease on these sites. For more information, check out “Breaking a car lease just got easier.”

The Big Three eventually might reverse course and re-enter the leasing market.

“We’ve certainly seen auto manufacturers reverse course as the market shifts in one direction or another,” says Nerad. “The Big Three’s desire to stem losses on vehicle leases may be less compelling than their desire to sell cars in the future.”