A shade over 29% of new-vehicle sales in the first quarter of the year were leased, according to Experian’s latest State of the Automotive Finance Market report.
That’s down a smidge from 29.83% a year earlier, but Experian notes in the report that a lease “continues to be a sought-after product, generating payments on average $98 lower than loans.”
In fact, Kelley Blue Book shares data from Experian indicating the leasing’s penetration of new-car retail sales in March was 34%, an all-time high.
In the 2019 “Automotive Industry Trends: Mid-year Update” report, released in late June, Edmunds said that year-to-date lease penetration was at 32.2% through May, which is the highest in its data set that goes back to 2002.
A year ago, year-to-date lease penetration was 31.5%; and in 2017, it was 31.3%. It reached 32.1% through May 2016.
Matt DeLorenzo, senior managing editor for Kelley Blue Book, said in a June interview that the strength in leasing should last a while.
“I think it will be fairly sustainable. One of the drivers in it is rising transaction prices, and currently it’s around $37,000 dollars,” he said in the interview. “So as long as transaction prices remain high.”
The pricier, more feature-heavy the vehicle mix gets, the more likely they are to be leased than purchased, DeLorenzo said.
At least in the new-car market. That can change in used (more on that below).
Often a more attractive option
In the first quarter, the average new-car lease payment was $457. While that’s up from $436 a year ago, average new-car loan payments were at $554, “with record highs seen across all loan types,” Experian said.
Asked if people still tend to shop by monthly payment, DeLorenzo said, “for the most part.”
There’s also the point of evolving in-vehicle tech.
“If they want the latest technology, because that’s changing also at a rapid pace, they will hang to their cars a shorter period of time,” DeLorenzo said. “If you don’t plan on long-term ownership of a vehicle, leasing becomes a much more attractive option than outright purchasing.”
Long-term impacts from leasing push?
Stop me if you have heard this one: There is a wave of off-lease cars on the horizon that will crush used-car prices.
“It hasn’t happened,” DeLorenzo said of such predictions. “And I think it hasn’t happened, because the manufacturers either extend the lease terms or pull forward the lease terms, and they basically balance their used-vehicle inventories much better.
“They’re much more sophisticated, and they have the tools to be able to do that (more so) than they were maybe five years ago or 10 years ago,” he said.
“So, they’re managing these vehicles coming in off lease, and it’s giving them a tremendous resource here in terms of late-model CPO units that dealers turn around and sell,” DeLorenzo said. “What we may be seeing, especially with more expensive vehicles, is a new model, in which the first purchaser leases it, and then the second person actually buys it.”
According to data from KBB parent Cox Automotive, off-lease vehicle volume is expected to reach a peak of 4.1 million this year (up from 3.9 million last year) and then stay at that level in 2020.
“And it means that the used market is going to remain a hot topic for our industry over the next couple of years,” Cox Automotive senior economist Charlie Chesbrough told reporters in June while discussing the company’s 2019 Mid-Year Review and Outlook report. “(There’s) tremendous activity that we’re seeing in used-vehicle sales.”
And, to DeLorenzo’s point, that activity may be happening in CPO. Even with the slightest of year-over-year declines in June (0.09%), certified pre-owned sales in the first half of the year were still 1.3% ahead of where they were in 2018, which was the eighth straight record year, according to a recent Data Point report from Cox Automotive.
Through June, there have been 1.40 million CPO sales, the report said.
“This year CPO sales are growing at a comfortable pace above 2018’s record-setting performance,” Cox analysts said in the report. “Favorable supply of vehicles entering the market will continue to support used retail sales.”