Leasing levels have held steady in the past few quarters, but are they still dangerously high?
AutoNation Inc. CEO Mike Jackson thinks so.
The industry should spend less time worrying about the notion of a subprime bubble and more time watching lease penetration, he said.
Total household debt in the second quarter was $12.84 trillion, according to the Federal Reserve Bank of New York. Auto loan debt made up $1.2 trillion of that. And out of all auto loan debt, less than 20 percent was subprime, according to Experian.
"If [subprime] went bad tomorrow, it's not big enough to matter," Jackson said. "But there are some characters who have overextended in subprime debt. They'll have to adjust, but it is absolutely not a systemic risk to the marketplace."
Too much leasing, on the other hand, could be. Twenty percent lease penetration is "normal," said Jackson, but 30 percent is too high. Leasing accounted for 30.8 percent of new-vehicle transactions in the second quarter, according to Experian.
Leasing in the luxury segment doesn't worry Jackson, but mass-market leasing does.
"That has a perverse effect on the marketplace. It's a distortion that has short-term, feel-good results but creates headaches down the road," he said.
It changes the "orderly cadence" of vehicles coming back to the market, which puts residual values at risk, Jackson added.
About 30 percent of AutoNation's new-vehicle transactions are leases, Jackson said, in line with the rest of the market. Although AutoNation helps consumers lease, Jackson said he's glad he doesn't have the risk of holding the paper like automakers' captive finance arms and other lease companies do.
Many lenders have said they are leasing smarter than in the past, and in the last few quarters, they've tightened financing standards overall.
Will that be enough to protect the market? Time will tell.