Auto Leasing Rebounds To 2005 Levels

April 6, 2011
Car shopping

Car shopping

Leasing is back, in a bigger way than it's been for more than five years.

Last month, nearly 21 percent of vehicles that left dealer lots did so on leases; in February, that number was closer to 25 percent. The last time that leasing accounted for this many new car sales was back in the pre-recession days of 2005, when getting credit was as easy as being able to sign your name. There are far more restrictions in place today (which is a good thing), but banks have eased credit restrictions in place just a few months back, and interest rates at near-historic lows have again ignited leasing interest in both buyers and manufacturers.

Some dealers are offering lease deals below $200 per month, which simply wasn’t possible when interest rates were higher.

A downside to leasing over the last decade was a buildup of used inventory, which lowered the value of vehicles returned from leases. Current economic conditions show the opposite: there is more demand for used vehicles today than there is supply, so leasing (especially short-term leasing) will actually help manufacturers build up inventory of good-condition used vehicles. Porsche, for example, is pushing 24-month leases on 911 models at lower, near-36-month prices. This ensures that customers are free to trade up sooner, and it also ensures a steady supply of low-mileage used inventory for prospective buyers.

Historically, automakers used leasing to promote either high-end vehicles or aging models, both of which benefit from lower-cost leases. It’s unusual for an automaker to offer lease incentives on brand-new models, but that’s exactly what GM has done with the Chevrolet Cruze. Critics pan the move as an attempt to buy market share, but GM defends their tactics as an effective way to bring leasing back to healthy levels.

If you’re in the market for a new car, and you can abide by the terms of a lease, you may have more options than you thought.

[Detroit News]

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