How Car Leasing is Changing

According to a recent report by Technavio (a leading global technology research and advisory company), the automotive leasing industry is expected to experience very significant growth in the next few years. The car leasing market is poised to increase by over 90 billion dollars between 2023 and 2027.
 
The State of Car Leasing
Rather than purchase a car, vehicle leasing allows customers the flexibility of driving the latest model cars with the newest tech features, without the cost of ownership and maintenance. There is an ever-increasing demand today for personal transportation solutions that offer convenience and flexibility such as that offered by leasing a car rather than owning it. Since the average car lease only lasts three years, customers can switch to a new vehicle at the end of their lease contact.
 
Many aspects of car leasing are changing rapidly and one of the factors pushing this change is the augmentation of online leasing that offers streamlined processes in a hassle-free environment. This is especially exciting when you consider the state of car leasing in America just one year ago.
 
How we Got Here
According to a study by the global information company TransUnion, auto leasing was down during the Pandemic period of January 2020 to July 2022. The company suggests this was due to a lack of inventory and low interest rates which turned consumers away from car leasing. The study reveals that the auto lease market was down almost half from 31 percent in January 2020 to 17 percent in July 2022, more than twice the decrease seen in auto financing over that same period of time.
 
Kelley Blue Book tracked similar changes, reporting that car leasing market share dropped from 31 percent in 2019 to 20 percent last year. Interestingly, those consumers who were in a car lease during that period tended to end their lease early. Because auto inventories were low during the Pandemic, lease vehicles actually gained in value over the residual values that were negotiated, meaning the cars were worth more at the end of the lease than was expected. This led to many consumers purchasing their lease cars, either keeping them or selling them at a profit. Indeed, the study shows that in 2022, 26 percent of lease customers ended their lease as much as six months early, amounting to a 63 percent increase over 2019 numbers. At the same time, a lack of inventory at car dealerships drove up prices for new and used cars and helped car leasing to rebound.
 
Other reasons for a resurge in leasing is due to an increase in automobile production and that inventories at dealerships are rebuilding. Add the fact that interest rates are on the upswing due to the Federal Reserve raising rates in an effort to ease inflation, and you have a positive future forecast for car leasing. Though new car prices may be coming down as production increases, monthly car payments are going up while monthly lease payments are going down, making leasing an affordable option for many.
 
Consumer Behavior
As of this writing in mid-2023, there are positive trends for auto leasing. Overall, consumers have been experiencing economic recession, soaring inflation, and a cost-of-living crisis that has squeezed household budgets to the max. As a result of all this, consumer spending on big ticket items such as a new car, has been down, softening demand. According to Cox Automotive, from December 2017 to December 2022, new car sales for affordable vehicles under $25,000, dropped by 78 percent, going from 13 percent of total new vehicle sales down to under 4 percent. We have seen a shift from luxury brands to lower priced mainstream brands such as Nissan, Toyota, Kia, and Hyundai.
 
In the leasing world, we have seen an increase in requested car lease terms from three to four years. This might indicate that affordability and financial certainty is important to drivers at the moment. As more new lease cars become available in the pipeline, we will likely see even more interest in leasing.
 
EV Bonanza
Another big trend in consumer leasing has been the move toward leasing all-electric vehicles. In 2022, over 20 percent of new car leasing customers decided to lease an EV. That's a staggering 1,575 percent increase since 2018. This may be largely because car leasing is likely the most affordable way for consumers to experience what it's like to drive and live with an electric car. According to leasing.com, EV leases may account for over 30 percent of new lease cars in 2023.
 
Where we go from here
Car lease industry trends include used car leasing in which companies will turn around cars at the end of a lease and offer them again at significantly lower rates. These cars are often certified pre-owned (CPO) vehicles that are less than five years old and with fewer than 50,000 miles on the odometer. Used car leases are similar to new car leases wherein the lender determines the car's residual value and assigns a money factor, usually resulting in a lower monthly payment.
 
Car Subscription services let customers drive new cars and change them frequently without committing to long term contracts. It is sort of like a longer-term car rental. The car subscription company takes care of all maintenance and insurance, letting you drive on a monthly basis, offering convenience and flexibility.
 
Let Lithia Help
With over 75 years of experience finding solutions for our customers' personal transportation needs, Lithia Motors has you covered. Whether you are looking to buy, sell, trade, service, or lease a vehicle, we're here to help.