Car leasing is back with a vengeance. If we include leases as part of total sales, they accounted for only 16.9 percent in 2009 (when credit was hard to get), a five-year low. Taking the figures from the beginning of 2010 to September, that number is now 21.1 percent – a five-year high.
And every major company has seen a hike. In Honda’s case, for example, leasing is now almost a third of its business. Chrysler leases represent a more modest slice, 10.6 percent, but considering they were at 2.6 percent in 2009, that’s still a huge proportionate increase. Ford has seen the smallest jump so far, 11 percent to 13, but is said to be planning a leasing promotion campaign for the fall.
The reason it’s happening at the moment is because credit has become easier to obtain, interest rates are down to 3.2 percent on average and car companies prefer to go with attractive lease deals rather than offer cash-back incentives, which tend to hurt a brand’s image and affect resale values.
“Our arithmetic says leasing is a good deal. It’s a good bet that resale values will be a little better later on,” said Don Esmond, senior VP of automotive operations for Toyota Motor Sales. The operative word there is “bet.” For this leasing bonanza to work and not turn around and bite the companies in a couple of years’ time, the economy in general has to perk up. But there is one other factor that will play into their hands: used cars.
When a new car can be leased for $199 a month, used cars, with their currently high relative prices, become a less attractive option. The slump in new cars sold during the economic crisis means a shortage of used cars now and for the near future. As the amount of available used cars dwindles even further, there still won’t be an excess when these leases expire and the cars go onto the used-car market, so prices should remain stable. Well, that’s the plan. Right now, dealers are welcoming anything that brings in the customers.