Those subsidies will buoy new vehicle purchases but trim profit margins. Aggressive leasing of SUVs and other new vehicles has spurred sales. SUV leases have tripled in the past 10 years. And nearly one out of every two SUVs, such as the Explorer or Toyota RAV4, hit the road with a lease attached. Experts warn the losses from leasing are a ticking financial time bomb, and a key reason big auto lenders such as Bank of America and Bank One just took big write-downs on their quarterly earnings.
Somebody has to suck up that unexpected loss on each leased vehicle.
And it won't be consumers. A few players in the auto industry are starting to tighten their belts. Look at Fort Lauderdale-based AutoNation, the nation's largest auto dealer and Tampa Bay's dominant seller of vehicles. Weaker used car sales, the eroding market share of U.S. carmakers and higher interest costs drove AutoNation's income from its nationwide dealership down 6.9 percent during the third quarter. AutoNation CEO Mike Jackson praised cost-cutting at company headquarters and 400 stores around the country.