This Week in Car Buying: Leasing starts to fade; Buyers want, but don't use SUV third rows; Mercedes tests subscriptions; Gas prices set to spike
Leasing may have peaked at nearly a third of transactions last year, but a study by Kelley Blue Book points to some cooling in the trend, particularly among buyers of more mainstream vehicles. Luxury buyers, however, will likely continue to lease vehicles at current rates, which is in the 40-50 percent range
The Leasing and Incentive Study just released by Kelley Blue Book shows a closing of the gap between lease and loan monthly payments to about $60 and as a result, there’s been a shift in buy versus lease sentiment among non-luxury buyers. It’s gone from 60 to 65 percent who say they will purchase their next vehicle, versus a 35 to 30 percent drop in those who say they are looking for a lease.
Lower payments are a prime motivator among those looking for leases, with 43 percent citing that as their rationale, while 31 percent want to drive a new car. However, with climbing new car prices, 78 percent of the respondents in the survey conducted last fall said they would consider leasing a late model used vehicle. Among them, 63 percent felt there are advantages of going the used route over a new lease, with most (40 percent) citing lower payments, while 18 percent said they would consider one for the lower vehicle buyout at the term’s end. These shoppers may get their wish as manufacturers crank up their certified pre-owned programs to include leasing their late model lease returns.
While there’s plenty of talk about car subscriptions and car sharing, the study also revealed that shoppers have a very clear idea that leasing is its own thing. A total of 57 percent said they believe leasing is not a form of car sharing.
Another hot button question is data and privacy. Two-thirds of the respondents said they would not opt into allowing the dealer or manufacturer to access diagnostic data from their vehicles during the lease period. However, that number dropped to 34 percent below the 37 percent who said they would if they were compensated for that access. However, the average compensation sought by those allowing access was $100 per month off their lease payment. So, while consumers may have privacy concerns, they want a lot of money when it comes to giving out data.
Buyers want, but don’t use SUV third rows
A quick poll of visitors to the KBB.com website show that while there is consumer preference for 3-row crossovers and SUVs, that doesn’t necessarily mean that they will use them. These findings come as a slew of new 3-row models are in the making including the 2018 Lexus RX L, the VW Atlas, Subaru Ascent and entries expected from Hyundai and Korea.
While the most popular reason (39-percent) for purchasing an SUV is the availability of all-wheel drive, the second highest consideration is the third row at 27 percent. The third ranking consideration is cargo capacity at 23 percent. Only 16-percent cited the taller ride height that SUVs offer. When asked how often the third row is actually used, 34 percent said never, another 23-percent said less than 20 percent of the time. Only 10 percent said they used the third row all the time.
Mercedes tests subscriptions
Following last week’s announcement that BMW will begin testing subscription services, rival German luxury make Mercedes-Benz said that it too is starting a pilot program in June with a similar program. Offered through dealers in Nashville and Philadelphia, the program is called the Mercedes-Benz Collection and includes multiple pricing tiers and the ability for participants to swap cars as needed. The pilot is a cooperative effort between Mercedes-Benz UA and Mercedes-Benz Financial Services USA.
The company has yet to offer specifics on its pricing tiers, but indicated that the monthly subscription will include insurance, roadside assistance and vehicle maintenance. The collection will likely include ranges of both luxury and performance AMG models priced accordingly. Subscribers will be given unlimited access to the vehicles in the tier no mileage caps. Mercedes says the vehicle swaps and other services will be arranged through a smartphone app and the dealers will handle vehicle pickup and delivery through a concierge service. It’s interesting to note that one of the markets, Nashville, is the same chosen by BMW for its program.
Gas prices set to spike
The U.S. Energy Information Agency is forecasting that consumers will pay an average of $2.74 per gallon this summer for regular gasoline. It’s the highest average summer gasoline price in four years. The forecast of a 26-cent-per-gallon increase over last year is the result of higher crude prices which stand at about $67 per barrel. The EIA expects overall gas expenditures this year will be about $2,300 or about $200 more this year.
The report says that average gasoline prices will peak at $2.79 per gallon in May before falling to $2.65 in September. Contributing to the higher prices is more demand from increased driving (which is predicted to grow by 1.3 percent this year) and more expensive summer-grade gasoline. EIA also points out significant regional differences ranging from a low of $2.45 a gallon in the Gulf Coast to $3.22 per gallon on the West Coast. The latter is driven primarily because of California’s high-priced summer blend gasoline.
Whether these rising prices will affect the sales mix of new vehicles away from larger crossovers and SUVs and back towards more fuel-efficient sedans, or give hybrid sales a lift, is left to be seen. Even at nearly $3 per gallon, it doesn’t seem to have an effect yet. The previous high for a gallon of gasoline was $4.11 in 2008 according to EIA figures. At best national prices will remain more than a dollar less per gallon for the foreseeable future.
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