Auto Leasing Shows Steady Growth

By Brendan Moore

05.04.2007


Vehicle leasing is continuing to rise steadily in the U.S. as a means of consumer auto finance despite the misgivings of some of the large auto finance providers. Leasing now accounts for a little under 23% of all new-vehicle deliveries, up from approximately 16% just four years ago. Of course, leasing penetration is still nowhere close to the all-time high of over 30% reached in 1999.

Vehicle lessors suffered huge losses in the years subsequent to 1999 as a result of inflated residual values, and that pushed a lot of lessors out of the leasing business, as well as forcing residuals up much higher. The combination of higher residuals and a smaller number of lessors chilled what was a red-hot consumer auto leasing market for years after this big shake-out. Memories of that crash in the business are what is making some of the current lessors a little nervous. It wasn’t that long ago, so the pain is still pretty fresh. Now, not all auto finance companies are nervous about the steady march upward in leasing; indeed, some are actively seeking to increase their leasing business. These lessors feel that the drivers of the irrational residuals on lease vehicles that existed before the last leasing debacle are no longer present in today’s leasing market. And if they’re a captive (GMAC, NMAC, DaimlerChrysler Financial, etc.) leasing company, they also like the fact that a consumer that leases a car is back for another new car in about 32 or 33 months, while the consumer that finances a new vehicle through an installment auto loan doesn’t show back up on the lot for almost 60 months. That is a huge difference, and you better believe the captives have taken note of that disparity.

Regardless of how the lessors feel about the risks of increased leasing, consumers are embracing leasing as a way to get the vehicle they want despite the recent rises in interest rates and new-car prices. As we commented on in an article titled Maybe You Should Lease Your Next Car last year (sill available in November 2006 Archives), there are many, many consumers that really should take a look at leasing their next new vehicle as opposed to financing that vehicle through a long-term installment loan, as many consumers are doing now (see Long-Term Auto Loans Continue to Rise in last month’s archives). It is simply a better deal for them financially. It is apparent that an increasing number of savvy consumers are figuring this out on their own, and I would expect further increases in leasing over the next few years. My forecast is that leasing will account for around 30% of new-car financing again by 2010.

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