CINCINNATI—Expect auto leasing volume to increase in 2018, predicts one analyst, who says longer loan-financing terms will actually contribute to leasing’s growth next year.
Scot Hall, executive vice president of Swapalease.com, said that reports indicate leasing will account for 30% of all new car sales at the close of 2017, down about one percentage point from its record high in 2016.
“I think leasing will pick back up in 2018, maybe not quite reach where it was in 2016 when it topped 31% of all new car sales,” said Hall. “But we’ll be above 2017.”
Hall predicts leasing volume will grow next year due to car dealers and carmakers promoting leasing to consumers more often as a means to move more cars off the lot.
“Look at all the terms increasing now for new car loans,” said Hall. “New car loans now are typically 72 months, and are moving out longer as the sticker price of cars rises and consumers want to keep payments affordable.”
Less Turnover
What that will mean, noted Hall, is that car buyers won’t be able to turn in their car as quickly as they have in the past as the longer terms place them in a negative equity position for a greater period of time.
“It’s just going to take the carmakers and dealers longer to get people out of that loan,” said Hall. “The way dealers often look at it is that leasing, in many cases, multiplies the cycle by two the number of cars being driven off the lot, from five to six years on a purchase to around 36 months for the average lease. The dealer can sell twice as many cars to a consumer over that same period. Plus, the carmakers get to keep their numbers up, with people coming back to the showroom more often.”
Scot Hall
While some experts have stated that automakers may be raising lease rates due the fact a large number of high-quality cars have been coming off lease in the last year, which in turn has driven down residual values, Hall contends carmakers will push leasing harder for another reason.
“Leasing is a much easier way to keep people with the brand,” said Hall. “The carmakers can easily market to these individuals, and can typically get to these buyers first when it’s time to turn in the car, offering incentives to stay with same make or even model. It’s not that hard for them to get these people into a new vehicle.”
Turning to consumers, Hall—as other experts have noted—emphasized wanting a new car now is about a lot more than a new design.
“There is just so much technology being packed into cars now—the new features, safety elements and entertainment options—that consumers are starting to look at their cars the way they look at their cell phones,” said Hall. “They trade in their phones every two to three years when the next best model comes out—the ones that are faster and with all the new gadgets.”
Driverless Cars
Hall sees the rise in leasing in 2018 carrying on through 2019.
“I see leasing continuing to grow for a couple reasons. One, I think leasing’s record year in 2016 showed that a lot of people got off the fence, maybe a little ahead of when then wanted. So, we felt those effects in 2017 and leasing volume dropped slightly, as there were fewer car buyers in the market. So I think we will have more people considering a lease in 2018,” said Hall. “But if you go even further out, I think even more people will be looking for a lease in 2019, as that will be the time in which many of those who led to 2016’s record year are turning their cars back in.”
Looking even farther down the road, Hall sees the impact of driverless cars and fleet services, where people pay a monthly fee and can order a car to be delivered to their home as needed, will hit automobile financing harder than leasing.
“One thing a lot of people overlook with leasing is that at the end of the day it is simply an alternative form a financing,” or a means to make driving a car more affordable than financing, said Hall. “So, fleet services are—like leasing was when it debuted 25 years ago—just another way consumers will pay for their cars. I see those things affecting (typically higher cost) car financing more so than leasing.”