Leasing Of Light Vehicles Sets Record In February

By Christina Rogers 

Vehicle leasing as a percentage of monthly light-vehicle sales hit a record in February, representing nearly one-third of retail volume and helping to keep down the average monthly auto payment.

J.D. Power estimates 32.3% of the 1.03 million cars and light trucks booked as sold by auto makers were financed via a lease agreement. That percentage was sharply higher than the 28% average for leasing set over the course of 2015, which was a record year for both leasing volume and light-vehicle sales. In January, 31.6% of retail vehicle sales were leases.

The firm released the new numbers Friday.

Unlike vehicle purchases made by a buyer using a loan or paying cash to own an automobile, a finance company--often owned by the auto maker--owns the car over the term of the lease. Terms of the lease are based on the expected value of the vehicle at the end of the term, but auto makers and finance companies often subsidize the deal to make the monthly car payment more attractive.

Starting this year, a swell of off-lease vehicles are expected to return to the market because of the steady rise in the financing tool in recent years. This could create a glut of good-condition cars that will heighten supply of used cars and potentially pressure new car margins after several years of transaction-pricing gains.

For the first time since the financial crisis, used-car values are expected to fall this year. J.D. Power forecasts as much as a decline of 3% to 4% in prices, a trend that could drag down what people are willing to pay for a new vehicle.

About 3.1 million vehicles will return to dealer lots off leases this year, up 20% from 2015, according to Manheim, the nation's largest used-car auction firm. The number will climb to 3.6 million in 2017 and 4 million in 2018, the firm said.

The rapid increase in the availability and use of leases has played a disproportionate role in boosting overall industry volume, according to J.D. Power. Auto sales hit a record 17.5 million in 2015 and registered a 3.5% increase through February compared with the same period a year ago. Nearly 77% of the 1.34 million light vehicles sold in February were retail sales, with the remainder delivered to fleet customers.

Auto makers and dealers value lessees who often return to showrooms for new vehicles every few years and create a steady flow of repeat business that helps hedge against economic volatility. Buyers, many of whom don't want to own a depreciating asset, often use leasing to find a more affordable monthly payment.

The average lease payment in February, based on a 36-month term with 10% down, was $425--virtually unchanged compared with the same month four years ago, according to J.D. The average car payment, based on a 72-month loan with 20% down, was $542, up $100, or 23% from February 2012.

Write to Christina Rogers at [e-mail]

(END) Dow Jones Newswires

March 04, 2016 15:18 ET (20:18 GMT)

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