Car loans for new vehicles next bubble to burst?

You know the economy is bad when a house given away for free by ABC’s “Extreme Makeover: Home Edition” is headed for foreclosure. While we hear a lot about the mortgage mess, there’s also big trouble afoot in the auto loan industry.

Turns out, Detroit’s Big Three want out of the car leasing business. Chrysler announced it first, then three days later, both Ford and General Motors leaked word that they, too, were backing away from leasing. This is a sea change in auto buying.

Since the early 1990s, leases have allowed consumers to take possession, albeit temporarily, of cars they couldn’t afford to buy. Automakers were thrilled because leases allowed them to expand the pool of potential buyers; created constant demand for new cars; and they were hugely profitable. After charging someone rent on the car for a couple of years, the automakers would take the car back and sell it used for a hefty profit.

Until this week, leases accounted for 20 percent of new car sales for the Big Three automakers. For now, buyers will still be able to make lease arrangements through third-party creditors, but lenders such as Chase and Wells Fargo seem to be turning away from leases, too.

What’s going on? A few things, all at once.

First, gas prices. Economic events always ripple outward, and $4 gas creates a lot of ripples. One has been the collapse of demand for new trucks and SUVs. The price of used full-size SUVs is down

27 percent; used pickups are down 25 percent. Leases are only profitable if the company can resell the car. Ford has reported $2.1 billion in lease losses; GM holds some $33 billion in lease assets.

The entire financing side of the auto industry is shaky. Delinquencies are at their highest levels since 1992.

The good news is that the auto loan market has stabilized.And unlike in the housing market, irresponsible lending and borrowing shouldn’t affect more responsible consumers. Of course it’s the indirect effects that’ll kill you.

E-mail Last at jlast@phillynews.com.