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Industry professionals expect declines in leasing to continue

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Industry professionals expect declines in leasing to continue

Although leasing continues to drive new-vehicle sales, it is growing at a slower rate than in recent years and experts say it could continue to decline this year.

For the foreseeable future, leasing will remain around 30 percent of the market, said Jessica Caldwell, director of pricing and industry analysis at Edmunds. However, leasing was only 16 percent of new-vehicle sales in 2009, Caldwell said.

Lease penetration, the leasing’s shares of all new-vehicle sales fell 11 percent in February from the previous year, Caldwell said. Lease penetration was at 29.7 percent last month, which is down from 33.2 percent in the same month, the previous year.

Edmund expects that lease penetration will continue to fall in 2017, declining 30 percent overall in 2017, from a record high of 32 percent in 2016.

Leasing is “still a very high percentage of new-car sales but the residual values are starting to take hits,” Caldwell said. It is also challenging for lease providers to offer low lease payments when dealerships and lenders will be unable to turn around and sell the vehicle for as much when it comes back to the market, Caldwell added.

“Consumers really like to lease,” Caldwell said, as long as the low monthly payment stick around. However, leasing has grown so much over the past few years and it “can’t continue at that pace.”

“Millennials and seniors actually have more in common that one might think, since both experienced deep economic recessions during their formative years that helped to shape their worldviews and made them more value-oriented,” Caldwell said. “Both Millennials and seniors crave the highest quality product for the best possible price, and considering these groups are both at a place in their lives where they likely have limited monthly cash flow, leasing can seem like the most viable option.”

Leasing levels were at a flat 28.9 percent, during the fourth quarter of 2016, according to Experian’s latest “State of the Automotive Finance Market” report.

Melinda Zabritski, Experian’s senior director of automotive finance, said she expects that leasing will hover around 28 or 29 percent this year, but noted that number could fall even lower if there is a potential negative residual-value impact.

Zabritski expects that in the first quarter, leasing will remain consistent with the 2016 fourth quarter. But, year over year, she said she expects that it will continue to decline. And the volume of lease returns is only expected to grow even more in 2018, according to Zerohedge.

Leasing reached 31 percent of new-vehicle sales in the first quarter of 2016.

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