Traditionally, about 30% of people who drive home a new car don’t buy it. They lease it. But the economic chaos of the past two years has upset most traditions in the automotive industry. Today, leases make up just 19% of new car transactions.
That poses several problems for car dealers.
Most new car leases last about three years. At the end of the lease term, lessees can buy the car for a price fixed when they signed the lease or return it. Most historically returned the car and leased a new one.
That gave dealerships a steady stream of customers returning on a fixed schedule. Cars coming off-lease quickly made their way into the used car supply. They were typically in good shape, with low mileage (most leases limit the number of miles a lessee can drive the car). So they formed much of the stock of the certified used car market.
Leasing Shrank When Price Math Changed
Over the past two years, however, the math changed. A shortage of new cars sent new car prices soaring. It also rocketed up the value of lightly used, late-model cars.
Rising prices created a strange scenario where many leased vehicles were temporarily worth far more than the price to buy them out at the end of their lease. So, many savvy shoppers simply bought their leased cars.
Toyota was hit particularly hard. David Christ, general manager of Toyota Motor North America, told trade publication Automotive News, “Toyota’s leasing percentage right now is about 14 percent [of total sales], and it would normally be [near] 30 percent.”
Unclear What New Lease Offers Are Coming
The company wants those customers who used to sign a new lease every three years to return to that practice. But it won’t be easy.
Customers who bought a new car at the higher prices of today’s market will need years to build up enough equity in the car to make leasing again seem smart. Toyota wants to have enticing new lease offers ready for them, but Christ tells AN that idea will become practical “mid-decade.”
Other automakers have started getting creative with new lease offers. Nissan recently unveiled a low-price, low-mileage lease aimed at those who now work from home.
