As far as leasing a car goes, don't, buying a car you can afford is a better deal

Is auto leasing really dead?

That question was the headline on a news release from the National Vehicle Leasing Association.

The organization was responding to news that some auto manufacturers are drastically scaling back their leasing business because it isn't so lucrative anymore.

GMAC Financial Services, the lending arm for General Motors, reported a loss in its auto finance business of $717 million in the second quarter of 2008 in part because of weaker performance in its leasing operation. The company said a sharp decline in lease demand and in used vehicle sale prices for sport-utility vehicles and trucks in the United States and Canada were to blame.

For years I've been trying to get people to see the financial folly in leasing a vehicle. Finally it's taken a convergence of economic events - rising gas and food prices, a slow economy, job losses - to park auto leasing as a lifestyle.

Beginning in the 1990s, the percentage of consumers who leased their vehicles began to rise significantly. People who couldn't afford to buy luxury vehicles found they could rent a better ride by leasing.

Foolishly, consumers bought the marketing hype that leasing made sense if you had to have a new car every few years. They focused on the short-term truths about leasing such as monthly payments lower than monthly car loan payments.

About 19 percent of vehicles driven out of showrooms last year were leased, according to Edmunds.com, an online resource for automotive information. Automobile leasing expanded 21 percent between 2005 and 2006.

One of the key factors in a lease contract is what's called its "residual value." That is the amount you need to buy the car at the end of the lease.

Many auto finance companies are taking huge losses because they "did a bad job of projecting that the residual values were going to be down," said Sergio Stiberman, founder and chief executive of LeaseTrader.com, an online marketplace that matches people wanting out of a vehicle lease with individuals looking for a short-term lease.

Additionally, people who are coming to the end of their leases for SUVs and other vehicles with poor fuel economy aren't opting to buy them because of high gas prices, contributing to the lease losses, Stiberman said.

Here's why leasing is an unwise choice: