U.S. Auto Leasing on Track to Return to 1999 Levels

TRAVERSE CITY, Mich.—U. S. car leasing is on track to return to levels not seen in more than 15 years as longer-term loans and low monthly rates fan consumer demand for either bigger vehicles or more bling.

About 3.6 million vehicles or 20% of this year's new car sales are expected to be leased putting the year on par with 1999, said Thomas Webb, chief economist with Cox Automotive. It is a huge come back for leasing which had fallen to a historic low of 1.1 million vehicles during the 2009 recession.

"This is good leasing and not what we saw in 1999 when people were getting into loans they couldn't afford," Mr. Webb said during an annual automotive conference.

Any boosts to the U.S. economy are welcomed by the world's auto makers and parts suppliers who are leaning on the strength here to offset a slowing China economy, falling demand in South America and currency fluctuations which are eating into revenues.

Auto sales in July increased 5.3% over last year putting the industry on line to hit 17.1 million vehicles for the year marking the highest level since 2001, according to Autodata Corp. Analysts expect those sales to begin plateauing in the mid-17 million range through at least 2020.

"Money is cheap and when money is cheap things are good," Steven Szakaly, chief economist of the National Automobile Dealers Association, said on the sidelines of the conference. "The auto makers also like leasing because it means every three years or so that customer will be back to get a new car."

Consumers are also getting a one-two punch. As they lengthen their leases—with some going as far as 60 months—they are borrowing more money without drastically altering their monthly payments.

Shoppers are on average now borrowing $3,900 more than they were in 2008 with most of that being plowed into buying SUVs and pickups or to buying more high-end creature comforts and infotainment, Rod Lache, Deutsche Bank managing director, said.

Despite this, most payments have increased only $15 a month," Mr. Lache said. "That's what people care about—the monthly payment."

Rising gas prices would topple the momentum since trade-in value for the bigger vehicles would take a hit giving customers less money to buy new.

General Motors Co. chief economist Mustafa Mohatarem doesn't see gas prices rising any time soon as most gas stations both in the cities and rural areas are keeping prices in the mid $2.50 range.

"There is a lot of oil out there," he said.

Write to Jeff Bennett at [e-mail]

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