(Updates throughout, adding information from GM and Ford)

By Jeff Bennett and Sharon Terlep

Of DOW JONES NEWSWIRES

DETROIT -(Dow Jones)- U.S. auto makers, aiming to compensate for the loss of leasing as a viable sales tool, are sweetening incentives to help dealers clear inventory amid the worst U.S. sales environment in more than a decade.

Chrysler LLC said Friday it is offering an additional $2,000 cash back across its product portfolio, while General Motors Corp. (GM) is expanding its offers on slow-selling trucks and SUVs, as well as two newly launched cars and the iconic Corvette sports car.

The moves comes after all three Detroit auto makers changed their leasing programs in recent days. Chrysler has stopped offering leases through its Chrysler Financial unit, while GM and Ford Motor Co. (F) announced plans to tighten the availability of leasing.

The auto makers are dealing with steep declines in the residual values of pickup trucks and sport-utility vehicles, which translate into losses when the companies take back vehicles as leases expire. Sales of large vehicles have plunged in recent months amid high fuel prices and weakened consumer confidence.

The reduced availability of leasing, which has typically accounted for about 20% of new-car sales in the U.S., leaves dealers without a key tool that enables many buyers to get into vehicles they couldn't otherwise afford. Lease payments are usually lower than monthly financing costs for purchases.

The changes in leasing practices come at a difficult time for the auto industry in the U.S., where sales are at their lowest levels in 15 years and concerns are rising about the ability of auto makers to weather the downturn.

Chrysler, in addition to the $2,000 cash back, has extended discounted six- year financing to more products and is offering $750 to lease customers that can be used toward the purchase of a new vehicle.

"This is an unprecedented shift to make owning as affordable as renting," said Chrysler spokesman Stuart Schorr, who confirmed the incentive changes. "The offers today help lower the monthly payments associated with retail purchases, giving consumers a better reason to buy."

GM told dealers Friday that customers can get $1,000 off various V-6-powered versions of the Chevrolet Malibu sedan and the Pontiac G8 sedan that hit showrooms this spring, spokesman John McDonald said. The auto maker will continue to offer six years of free financing on its large SUVs and up to $8,000 off a GMC Envoy or Chevy Trailblazer.

Buyers also can get a deal on the Corvette sports car, up to 48 months free financing. McDonald said GM has offered zero-interest loans on the iconic Chevy before, but not for as long.

GM Chief Operating Officer Fritz Henderson, speaking Friday on a conference call to discuss the company's second-quarter financial results, said leasing is the most costly sales tactic for the auto maker. He said GM will use incentives to remain competitive and continue to assess the impact of leasing pullbacks on sales.

Ford, which on Friday said its July sales in the U.S. fell 15%, is expected to provide details on new incentives. Two dealers said Ford will continue to focus incentives on regions while bumping up cash back on V-6 powered vehicles.

Ford said last week that it wrote down $2.1 billion owing to leases in the second quarter, a key factor in the company's $8.7 billion loss for the period. GM, which on Friday reported a $15.5 billion loss for the latest quarter, said that declining residual values affected its second-quarter numbers to the tune of $2 billion.

Chrysler, which is owned by investment group Cerberus Capital Management, hasn't disclosed the financial impact of leases gone bad.

- By Jeff Bennett, Dow Jones Newswires; 248-204-5542; jeff.bennett@ dowjones.com

- By Sharon Terlep, Dow Jones Newswires; 248-204-5532; sharon.terlep@ dowjones.com

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  (END) Dow Jones Newswires
  08-01-08 1314ET
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