Why Now May be a Good Time To Lease The Family Car

March 13, 2011
2011 Kia Optima Hybrid

2011 Kia Optima Hybrid

To lease or not to lease, that’s a good question. For many months, the answer has likely been a resounding 'No' for many American families. That’s because good lease deals were few and far between, and with the economic uncertainty, many people simply put off the prospect of looking at a new family car purchase or lease altogether.

While attractive lease deals have come and gone before, now may actually be a really good time to lease a family car. Why is that? During the dark days when General Motors and Chrysler were on the brink of extinction, leases dried up. With no leases available--and no captive finance companies to make them--a big chunk of the lease market either went away from the domestic automakers entirely or diverted to Toyota, which remained firmly in leasing.

Now, however, leasing is back--and in a big way. According to R.L. Polk, leasing currently accounts for about 20 percent of all new vehicle registrations industry wide. This is actually a return to normal levels last seen in 2006. Lease penetration for Toyota’s captive finance company doubled from year ago levels to 29 percent of booked transactions. And luxury makes still dominate leases in the U.S. In 2010 (through the third quarter), R.L. Polk data show that 40 percent of leased vehicles were luxury makes, compared with 16 percent of mainstream vehicles that were leased.

2011 Cadillac CTS Coupe

2011 Cadillac CTS Coupe

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Cadillac, for example, is offering ultra-low mileage leases on 2011 Cadillac CTS coupes and sedans for 36 months and $0 due at signing (after all offers) for qualified lessees.

What’s a good lease deal?

What constitutes a good deal on a lease? For one thing, some automakers are offering zero percent and cash back (up to $750, in some cases). There’s also a greater number of vehicles now available for lease than ever before--and in some vehicle categories where leases weren’t offered (such as certain brands’ small cars).

There’s also a shortage of good used cars today, which drives up purchase prices for the supply that’s there. Why should consumers look at paying more for a used car than a new model? And, if they want to get more car for their money--as in move up to a higher trim or a luxury make--that price differential may be enough to move them to a new vehicle lease.

Another reason why leasing may be a good deal right now is that residual values are improving for many vehicles, driven largely by the dearth of used cars. When used cars are scarce and their value increases, the residuals on new cars go up.

Higher residuals prompting brands to get into leasing

Kia and Hyundai, whose products have gained tremendously in product design and quality in the past few years, are poised to make gains from leasing. The domestic automakers have also made significant quality improvements recently.

The key point about Kia and Hyundai is that because of the rising residual values of their products, they’re now keen to look at leasing – where they haven’t before or were only involved to a very little extent.

The all-new 2011 Kia Optima, which launched with a 66 percent boost in its residual rates (compared to the 2010 model), is one product that may make for a good lease. There's also the all-new 2011 Kia Optima Hybrid coming soon. Similar gains in residual rates have been posted by the Kia Soul and Sorento.

Hyundai’s all-new 2011 Sonata and upcoming 2011 Sonata Hybrid are other mid-size family sedans that may be attractive lease considerations.

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