Leasing

Lease-transfer approvals improve again in August

CINCINNATI and SCHAUMBURG, Ill. - 

Experian recently determined that the average lease payment originated during the second quarter rose $19 year-over-year to $431.

And consumers appear to have the credit profile to handle such a commitment since Swapalease.com reported that vehicle-lease credit application rates continued to improve in August.

Site officials shared on Tuesday that their August approval rate came in at 72.6 percent, up from the July reading of 71.2 percent.

Swapalease.com noticed that August experienced a higher number of applicants with qualifications that led to more approvals for taking over another person’s lease contract during the month.

The site also mentioned that August generated a slight increase in approval ratings from the numbers posted in the same month last year. That’s when 68.3 percent of lease applicants were approved.

Since January, the lease approval rate has continued to rise, making August the strongest month of the year thus far.

Approval ratings rose from 57.8 percent in January to 70 percent in April, and then experienced a slight decline in May to 67.9 percent. Since June, ratings have increasing again each month.

“We are continually impressed with the increase in number of applicants, as well as with the increase in lease approvals,” said Scot Hall, executive vice president of Swapalease.com.

“The strong economy is certainly helping boost the credit approval rate for lease transfer applicants, but as prices on new vehicles keep rising and incentives continue to fall, we believe a growing number of shoppers will seek alternate channels for their next vehicle, such as the secondary lease transfer marketplace,” Hall went on to say.

And to continue Hall’s point, Experian’s latest data showed an ever-so-slight dip in the volume of leases originated and connected to new vehicles during the second quarter. The Q2 figure was 30.41 percent of all new-model financing. A year earlier, the reading was 30.83 percent.



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Diminished incentives push Swapalease.com Q2 search activity

CINCINNATI - 

Perhaps at least for a trio of nameplates, consumers are finding more attractive vehicle lease options via Swapalease.com than what franchised dealerships are presenting from captive finance companies.

According to its second quarter report, Swapalease.com indicated search traffic for three OEMs that book a significant volume of leases — Mercedes-Benz, Volkswagen and Toyota — jumped year-over-year by at least 20 percent.

Compared to the second quarter a year ago, Mercedes-Benz search traffic is up 29 percent, while Volkswagen is up 23 percent. And for Toyota, the jump is even higher at 35 percent.

Swapalease.com attributed much of this growth to an influx of shoppers seeking alternate options for lease deals since many OEMs have lowered incentives on new lease offerings.

“As a result, more consumers are searching to take over an existing lease deal through the Swapalease.com marketplace,” site official said.

Looking on a sequential comparison, the search-activity increases weren’t quite as dramatic. Swapalease.com reported that Infiniti led the way with a 9-percent rise in searches from Q1 to Q2. Other notable rises included Buick (up 6 percent), Volkswagen (up 6 percent) and Hyundai (up 5 percent).

Taking a search-activity tumble quarter-over-quarter by 13 percent included GMC, Lexus and Subaru.

BMW continues to lead all brands in total overall share of traffic on Swapalease.com, with 11 percent share of all activity. Mercedes-Benz is next with 8 percent, followed by Audi at 3 percent.

Lexus, which sustained that double-digit drop from the previous quarter, also saw its total overall share of traffic on the site fall to 2 percent, down from 3 percent the previous quarter.

Site officials added that several brands continue to see total overall search traffic metrics of less than 1 percent. That group includes badges such as Chrysler, Ram and Nissan.

Switching from what brand consumers are searching to what they’re paying, Swapalease.com indicated the average lease payment in the second quarter registered at $487.51 per month, down from $495.83 in the first quarter.

The report went on to mention the average months remaining on a contract rose during Q2 to 28.8, an indication that people are looking to escape their leases earlier in their contracts.

Conversely, the average miles remaining dropped slightly to 22,617 left in the contract, which shows people are driving more while they have their lease; perhaps due to the continued low price of fuel.

Swapalease.com added the average incentive offered to escape an existing lease fell slightly to $601.91, which is reflective of the rise of search traffic and the increased demand for lease takeover.

Swapalease.com executive vice president Scot Hall pointed out that sellers are finding more buying activity on the site and are less likely to offer a hefty incentive to escape their contract.

“As the trends show, leasing remains popular as an alternate form of finance, and shoppers will continue to seek the right deal that fits their automotive needs whether that’s on the showroom floor or through the secondary market where there is greater term flexibility,” Hall said.

Hall added that most people continue to lease an SUV (23.7 of deals), up noticeably from 19.5 percent during the first quarter. Conversely, midsize car drivers fell to 12.3 percent in Q2, down from 13.3 percent. The number of drivers with sports cars decreased, too, falling to 4.7 percent from 7.7 percent a year earlier.

What’s more, even though popular truck models are some of today’s best-selling vehicles at the dealership, Swapalease.com found only 3.5 percent of people say they’re leasing one, down from 4.2 percent in the first quarter.

The entire Q2 report from Swapalease.com .

Auto lease penetration steady in first half

CARY, N.C.  - 

Lease penetration in the first half of 2018 was relatively steady with year-ago figures, according to data released Monday by Edmunds.

Through six months, average lease penetration was at 31.3 percent, compared to 31.2 percent in the first half of 2017.

The first-quarter levels were at 31.7 percent in both 2017 and 2018, while second-quarter lease penetration inched up from 30.6 percent last year to 30.8 percent this year, according to Edmunds.

In its data set, Edmunds also shared leasing figures for the Big 3 automakers.

Average lease penetration at General Motors through six months of 2018 was at 25.9 percent, down from 30.4 percent in the first half of 2018.

At Ford, leasing climbed from 23.3 percent penetration through six months of 2017 to 25.1 percent in 2018.

For FCA, lease penetration reached 30.5 percent in the first half, up from 27.8 percent a year ago.

In a similar analysis, Equifax monitored lease originations through the first quarter.

It found that there were 849,600 leases written in the first quarter, down 12.7 percent year-over-year. The total amount on those originations was $13.96 billion, a 13.3-percent decrease.

“We see a slight pullback in lease activity from a year ago, but the average origination balance on leases has remained relatively unchanged from a year ago,”  Equifax deputy chief economist Gunnar Blix said in the analysis.

In March, leases issued that month had an average origination balance of $16,586, up 0.14 percent year-over-year. That number is reflective of the amount in the contract and does not include expected residual values, Equifax notes.

 

 

Smoke: Off-lease peak now likely to happen in 2019

CARY, N.C.  - 

As it turns out, the peak in off-lease car volumes will likely be here sooner than once thought.

And the growth in lease returns is slowing down and “no longer posing a threat to the market,” Cox Automotive chief economist Jonathan Smoke said in a call with reporters and analysts earlier this month.

Following what’s expected to be approximately 3.9 million lease maturities this year, the market should cap out at 4.1 million lease returns in 2019, according to an analysis on the wholesale vehicle market from Cox Automotive.

Lease maturities for 2020 are expected to then decline to 3.9 million, followed by 3.7 million in 2021, 3.6 million in 2022 and 3.5 million in 2023.

Or as Smoke put it: “The growth in off-lease maturities in decelerating.”

From 2014 to 2017, lease maturities climbed from 2.2 million to 3.5 million, representing the “peak growth years” in off-lease volume.

And the peak volume year is now likely to happen in 2019, instead of the previously expected 2020.

During the Q&A portion of that July 9 call, Bank of America’s John Murphy observed that expected lease returns for 2019 are lower than previously projected based on lease originations in 2016.

Smoke then confirmed Murphy’s hypothesis that automakers have, in fact, shifted the maturities of leases.

Cox Automotive has “revised our estimates because we have focused on getting far more precise at understanding the actual duration of those leases,” Smoke said.

“And previously, we had been seeing a stronger mix of two- to three-year leases,” he said. “It’s now shifted a bit more to three- and even a growing number of four-year leases.

“And that’s causing some of the shift in the pattern, and the absolute peak for a while we were projecting would be in 2020. Now we’re actually seeing the peak falling more in 2019,” Smoke said.

At the crux of this shift is the “dramatic increase in lease payments,” Smoke noted.

And one way automakers can control the rising lease payment is by making lease contracts longer.

OEMs do ‘anything they can’ to control payments

In addition to vehicle price and interest rate/money factor, a key driver of lease payment is the residual value forecast, he explained.

With residuals — “especially residual forecasts” — having dropped “substantially” from their 2014 high, lease payments on average have climbed about 6 percent year-over-year, Smoke said, citing Dealertrack data.

“I think the manufacturers are doing anything they can, including a heavy amount of lease subvention, to help control what otherwise would be an even higher price,” Smoke said. “Because behind the scenes, we’re seeing less leasing of cars and more leasing of luxury and more leasing of SUVs as part of that mix.”

Case in point, the 2017 Honda Accord was the most popular lease observed in the data in June 2017, he said, again citing Dealertrack data. The 2018 Nissan Rogue was the most popular this June.

In a separate analysis, Cox Automotive notes that leasing now has less of a “cost advantage” than it once did compared to auto loans. As such, lease penetration has declined from a peak of 32 percent in 2016 to a range of 25 percent to 30 percent since then, the analysis said.

‘No longer a threat’

In the Q&A portion of the call, Smoke also expanded on the notion that off-lease volume will no longer be a real risk to the market.  He also touched on the projection that more dealers would try to retail off-lease units and the impact on used-car pricing.

“I think that off-lease is both positive and supportive of continued strength in (used-car) pricing, but it’s also clearly changing in terms of the amount of increase is no longer posing a threat to the market, which at the end of the day is generally supportive of pricing,” Smoke said.

“But we are seeing the mix of those vehicles shift; but the attractiveness of the vehicles that consumers most want likely is meaning that as we progress, fewer and fewer of those vehicles are actually reaching the auction,” he said.

“So, the effect on the market overall is that the market continues to be very dependent on off-lease. The No. 1 model-year represented for the last several years has been 3-year-old vehicles,” he said.

“And we don’t project that to change, because it’s only off-lease that’s actually growing in share, even though it’s decelerating. So, its importance to the auction, its impact on the price index because of the composition of vehicles reflected, continues to be positive,” Smoke said.

However, given the slowdown in off-lease growth coupled with a strong “attractiveness” in that volume, it’s likely to mean that the grounding rate among dealers will continue to climb as they try to sell those lease-end vehicles to retail used-car customers, he said.

Best July lease deal comes in at $129 per month

CINCINNATI - 

With activity ramping up for trucks and SUVs, Wantalease.com noticed a different compact sedan supplanted the Ford Focus as having the lowest monthly lease price of any new vehicle.

According to July metrics shared by the site this week, now available for a monthly lease commitment of just $129 is the Nissan Sentra. That’s $21 less than the Focus as the Blue Oval pushed up the monthly payment for the compact up by 2.24 percent to $150.

While most vehicle prices have remained steady into July, Wantalease.com noticed that dealers have offered discounts on a variety of new trucks and SUVs to continue spurring interest in summertime lease deals. 

The two largest discounts were for the Chevrolet Equinox with a $73.38 decrease in price, and the GMC Canyon Crew Cab with a $58.33 decrease in price. 

The Equinox is offered at just $179 per month, while the Canyon Crew Cab is priced at $249, according to site officials.

“We’re seeing an increase in discounts and aggressive summer pricing beginning to permeate across trucks and SUV’s for lease deals,” said Scot Hall, executive vice president of Wantalease.com. 

“Consumers are increasingly searching for aggressive deals on everything from small trucks to large, as well as mid-size and luxury SUVs,” Hall continued.

The vehicles with the largest jumps monthly payment included the Ford Fusion with a 10.77 percent increase and the Honda Pilot with a 6.02-percent increase in price from June.

The Fusion is currently offered at $223 per month, while the Pilot is offered for $389, according to Wantalease.com.

Lease-transfer approvals remain steady in June

CINCINNATI - 

Approvals for vehicle-lease transfers continue to remain on a steady track.

On Wednesday, Swapalease.com reported that vehicle lease credit applicants registered a 68.4-percent approval rate in June, up slightly from the 67.9-percent mark registered in May.

Even though lease origination activity at dealerships has been down slightly in 2018, site officials have noticed lease takeover activity has remained healthy, with many shoppers taking advantage of shorter, customizable terms offered on the secondary market.

Swapalease.com pointed out that benefits of lease takeover can be extremely budget friendly, with interested shoppers avoiding the down payment typically required at the dealership — this has already been covered by the initial lessee — and the ability to make a shorter commitment on the lease contract.

With the economy still relatively strong, Swapalease.com has experienced more stability in its lease approval rates since the beginning of the year. Since February, the lease credit approval rate hasn’t dipped below 65 percent, illustrating a normal and healthy approval range.

“We’re seeing a few more applicants with quality credit to take over leases in the marketplace, most likely as a result of higher lease costs at the dealership,” said Scot Hall, executive vice president of Swapalease.com.

“An additional benefit of taking over an existing lease is that the buyer is insulated from economic changes affecting dealership prices, such as higher interest rates or lower incentives offered at present day,” Hall added.

Lease prices remain stable as summer intensifies

CINCINNATI - 

Wantalease.com is noticing the leasing promotions leveraged by automakers and dealerships during the spring are being kept in place as the industry moves into summer.

Site officials reported that prices on most of today’s popular leases holding steady compared to May. Wantalease.com noted 36 different vehicles maintained their prices.

Only one vehicle is currently offered for less than $150 per month on Wantalease.com. The Ford Focus is priced at $149 per month, making it the most affordable vehicle lease for the month of June.

The site pointed out a lease for the Ford Focus dropped compared to May as it was previously listed at $179.

While most vehicle prices held steady entering June, Wantalease.com insisted dealers continue to offer aggressive prices on entry-level vehicles, in particular.

Two entry-level cars — the Chevrolet Cruze and the Volkswagen Jetta — are currently offered at less than $200 monthly. In fact, the Chevrolet Cruze is currently offered at $179 per month.

“We’re seeing prices stabilize on many leases entering summer, an indication that dealers were aggressive during spring and they’re looking to maintain these offers as we enter the summer months,” said Scot Hall, executive vice president of Wantalease.com.

“Consumers will continue to increasingly search for aggressive deals from small cars to large, luxury trucks and SUVs,” Hall continued.

The vehicle that saw the largest price increase entering the month of June is the Cadillac CTS 2.0 Rear Wheel Drive. This vehicle, which is currently offered at $489 per month, increased in price by 24.65 percent in comparison to previous month.

The Honda CR-V LX also saw an increase in price by 19.66 percent, bringing the monthly payments to $259, followed by the Infiniti QX80, with an increase of 11.93 percent and monthly payments of $769.

LeasePlan agrees to provide FCA customers fleet solutions in select European markets

AMSTERDAM and TURIN, Italy - 

In several European markets where FCA does not operate its own captive arm, LeasePlan will now offer operational lease solutions to FCA customers.

The vehicle leasing and fleet management provider announced Monday that it has agreed to be a new FCA operational lease partner that will concentrate on the growing small and medium enterprise (SME) segment of car buyers.

FCA SME customers in Austria, Czech Republic, Denmark, Finland, Greece, Hungary, Norway, Poland, Portugal, Slovakia, Sweden and Switzerland can now take advantage of full operational lease products that are available on a preferred partner basis from LeasePlan.

LeasePlan said it defines SME customers as those with up to 25 vehicles in their fleet.

“SME is LeasePlan's fastest-growing segment and a crucial element in our strategy to lead the European Car-as-a-Service market,” LeasePlan senior vice president commercial Berno Kleinherenbrink said in a news release. “I'm therefore delighted to announce our new partnership with FCA, which gives us an additional route to serve the important SME segment.

“These customers want flexible, hassle-free and fast solutions — and that's exactly what we provide,” Kleinherenbrink continued.

At year-end last year, SME vehicles made up about 17 percent of LeasePlan's serviced fleet, according to the company.

In contrast to traditional white label agreements, LeasePlan explained that its new partnership with FCA is based on a referral model where the automaker will provide vehicles with an operational lease managed fully by LeasePlan.

The partnership aims to deliver customers flexible, cost-effective solutions in a short amount of time, according to LeasePlan.

“This is the first partnership of its kind for LeasePlan with a major European OEM,” the company said.

With pre-configured FCA vehicles available, LeasePlan said customers can receive the vehicles they select within two weeks.

Additionally, LeasePlan said that it will extend both training and certification to FCA dealers on its SME products and service portfolio.

New-car lease penetration remains in 30% ballpark

CARY, N.C.  - 

In an interview for the AuSM Podcast in late March, Experian’s Melinda Zabritski said one auto financing metric she would be watching carefully in 2018 was the lease penetration rate.

“There are several things that I think are going to be very interesting for the coming year, one of which is a lot of questions around will leasing still remain at this 30-percent rate,” said Zabritski, the senior director of financial solutions at Experian.

So far, so good.

According to Experian’s State of the Automotive Finance Market released Thursday, 29.83 percent of new-car sales in Q1 were leases.

That’s down compared to 31.06 percent a year ago, but up from 28.28 percent in the fourth quarter.

In addition to remaining at elevated levels, leasing also continues to lean toward the higher credit tiers. 

Experian said that in the first quarter, 48.57 percent of new leases went to prime consumers, up from 48.18 percent a year ago and 48.37 percent in the fourth quarter.

Similarly, the share of new-car leases going to super prime consumers climbed from 29.21 percent to 29.46 percent in the past year. In Q4, 29.09 percent of new-car leases were super prime.

Or, put it this way: a full 78 percent of leases during the first quarter of 2018 went to either of those top credit tiers.

The average credit score on a new-car lease during Q1 was 724, up from 722 in the fourth quarter and in Q1 of 2017.

Meanwhile, the average credit score on a new-car loan in the first quarter of this year was 716.

The average monthly payment on a new-car lease was $436 in Q1, compared to $430 in Q4. Average new-car loan payments reached another an all-time high at $523.

More analysis from Experian can be found in th below podcast with Auto Fin Journal senior editor Nick Zulovich, who interviewed Zabritski in Las Vegas during the AFSA Vehicle Finance Conference in late March. 

 

Moody's Analytics: The non-impact of off-lease volume on supply and price

NEW YORK - 

An assessment of supply is critical to understanding future residual price trends, though difficult to calculate. Our aim here is to help readers better understand the drivers of used-vehicle supply in the U.S.

In 2015, about 17.5 million new cars and trucks were sold in the U.S. Let’s assume that all of these vehicles were 2015 model year and that such vehicles are not sold in adjacent years. In the future, this cohort of 2015 vehicles will be traded in and repoed, bought from used car dealers, exchanged privately, totaled by insurance companies, driven into the ground, repaired, stripped for parts and ultimately scrapped. Some 2015 model year vehicles will be exported to other countries, while a much smaller number of foreign vehicles will be imported. 

What we know for a fact is that 2015 vehicles will never again be produced. The stock of such autos can and will decline in future, but it can never increase.

There are actually only three ways to increase the supply of 3-year-old cars in the U.S. First: produce an extra new car today and then wait for three years. Second: import an appropriately aged used vehicle from overseas. Third: rescue a vehicle that, for whatever reason, had been removed from the current cohort of 3-year-old vehicles.

The first of these is the main driver of used vehicle supply. We find, quite reliably after controlling for demand-side ructions, that declines in used car prices lag increases in new vehicle sales by between 18 months and two years. 

In terms of used vehicle exports, data are somewhat spotty, but reveal that in 2013 about 800,000 used vehicles were transferred abroad. Used cars and trucks typically flow from richer countries to poorer countries so apart from the odd vintage car enthusiast bringing home a beloved 1964 Porsche 911, we can surmise that vehicle exports exceed imports by a healthy margin. One can imagine that exports are impacted by domestic prices, rising when U.S. prices are suppressed and falling when local prices are relatively high. 

The third supply driver — the rate at which older vehicles are retired — is perhaps the most interesting of the three. We know from the Cuban experience that when new vehicle production or imports are severely curtailed, the value attached to older vehicles rises apparently without limit. In the U.S., the supply dynamics are less stark but people still make supply decisions when determining, for example, whether to repair the blown head gasket on their 1998 F-150 or buy a different car. Cars are often retired when they still have many years of safe motoring ahead of them. People may even retire perfectly good cars just because they like the features offered on newer models. If the propensity to retire vehicles ever rises, this represents a supply contraction that will potentially impact used vehicle prices.

Just as important is a consideration of the things that do not increase the supply of used cars. If, for example, my neighbor offers to buy my three-year-old hatchback and I agree to sell it, there is no change in either the demand or supply position of the market. Yesterday I was consuming the vehicle and my neighbor was catching the bus to work; today our roles are reversed.  

The next question we must address is whether these dynamics change if a dealer acts as a middleman to the transaction between myself and my neighbor. While the dealership is providing an indispensable retail service by matching my needs with those of my neighbor, the only way a used car dealer can impact supply is by opting to send a vehicle in their possession off to the salvage yard.

There is no doubt that dealer inventories can rise if there are too many sellers and not enough buyers. This issue is currently a major concern because of the flood of off-lease vehicles that have been present in the industry over the past few years. The critical thing to keep in mind is that the total number of 2015 vehicles in circulation in the U.S. is unaffected by the nature of their original financing arrangements. For off-lease volume to be a genuine problem we would need the demand for clocking miles in three-year-old cars to decline relative to the normal level. There is no evidence that this phenomenon has recently occurred.

So what explains the declines we have witnessed in used car prices over the past few years? For one thing, prices entered this period at an aggregate level that was well above trend. This occurred because new vehicle sales fell by half during the Great Recession — causing supply to contract — and only slowly recovered in the years immediately afterward. The paucity of 2008 model year vehicles is a market feature that is still in evidence today. 

New vehicle production and sales then increased at a steady clip in recent years, causing prices to fall back toward trend levels. Americans have also shown an increased propensity to keep older cars in operation for longer and this has also helped to boost available supply.

Trading used cars among ourselves is great for generating retail service fees for dealers but it has no bearing on vehicle supply. When analyzing possible implications for residual prices, market participants would be wise to ask whether a particular event adds to or subtracts from the size of the vehicle fleet. 

It is only these events that can influence vehicle supply, and therefore vehicle prices. 

Tony Hughes is a managing director at Moody’s Analytics, where he leads the development of used-car price forecasts.

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