Cox Automotive warns of decline in car leasing options
A new report from Cox Automotive concludes that leasing has “significantly declined” since the pandemic and that this trend could have long-term consequences.
His to research led the company to cut its rental share forecast for 2022 to 19%, with the company warning it could fall even lower based on current trends. He warns that fewer rental options could have potential impacts for consumers, reducing affordable ways to use a car.
Leasing new cars usually means a cheaper monthly payment than having a purchase financed with a loan. Cox says that means leasing provides an affordable “gateway” to new vehicles for people who can’t purchase the vehicle directly. It is also a better option for motorists who want to change cars regularly and who do not want to subscribe to a contract for more than three years.
Previously, according to the report, almost 30% of all retail sales between 2015 and 2019 were rented, peaking at 34% in 2019, before Covid-19 caused a steady decline. Low financing offers at the start of the pandemic, as well as low inventory levels due to supply shortages, contributed to the decline in the number of consumers choosing to lease vehicles.
Cox Automotive suggests three main reasons for declining leases. Rising vehicle prices and interest rates have driven many buyers out of the rental market. He revealed that the average lease payment of 2022 equals the average new vehicle loan payment of 2020.
Returning customers have not always returned. Usually, these customers return their keys at the end of the contract and replace a vehicle with a new leased vehicle, Cox says, this “virtuous circle” has been interrupted. Because the value of the vehicles has increased over the last two years, rather than taking out a new lease contract at a higher price, they are opting instead to purchase the vehicle outright.
The third reason, according to Cox, is that rental offers are not compelling this year. OEMs do not support leasing because they prefer to sell a new vehicle. There have been fewer incentives for customers and dealers to lease.
The report also analyzes the potential implications of a decline in rental market share. He said the short-term implication of a drop in rental is that consumers are likely to face higher prices because rental payments are normally lower than purchase costs. Fewer leasing options limit the pool of new vehicle buyers, which shrinks as vehicle prices rise and interest rates rise.
The longer-term implications could mean that fewer non-lease or “moderate use” vehicles will become available in the very near future. These vehicles often make up the Certified Pre-Owned vehicle market and are popular with consumers who cannot afford a new vehicle but want a quality product with a warranty.
Prior to the pandemic, a buoyant new vehicle period meant that there are now many good quality non-lease vehicles available for purchase. From 2023, this could change, impacted by the post-pandemic slowdown in new vehicles. This will impact the supply of used vehicles by 2025. Cox Automotive says the number of lease expirations from 2023 to 2025 is expected to be 2.5 million less than the total expirations between 2020 and 2022. By As a result, current high used car prices could last longer than expected, especially as demand slows due to rising interest rates.