Vehicle leasing is making a modest comeback. But it's still far short of the record level of 1998.
Leases accounted for more than 17 percent of U.S. retail sales of new vehicles each month from November 2004 through February 2005, says Power Information Network LLC, an affiliate of J.D. Power and Associates. Those were the highest monthly rates since March 2003, Power says.
Rising interest rates and higher residual values are making leases more attractive, Power says. The average interest rate on a new-vehicle loan in mid-February was 6.67 percent - the highest figure since June 2002, Power says.
Peak in 1998
Leasing peaked in 1998, when 26 percent of new vehicles sold at retail were leased, Power says. In 2004, monthly lease rates ranged from 13.3 percent to 18.0 percent, Power reports.
"If interest rates keep going up, and we really think they will, leasing will also continue to go up," says Tom Libby, senior director of industry analysis at Power Information Network.
Separately, the Association of Consumer Vehicle Lessors reports that lease volume among automakers' captive finance companies grew 9 percent in 2004 over 2003. Leasing by all large lessors rose 5 percent last year, the trade association says.
But lease volume among banks fell by 17 percent. The association did not address the inconsistency.
More typical levels
Automakers agree that the recent increases in lease rates are returning lease volumes to more typical levels.
Leasing gained in popularity in the 1990s because it reduced monthly payments. After the terrorist attacks of Sept. 11, 2001, automakers offered 0 percent financing and generous rebates to boost sales. Those incentives made leasing less attractive.
Dave Nordstrom, remarketing manager at Toyota Financial Services, says the captive expects leasing to account for 15 percent to 20 percent of Toyota Division retail sales this year. The division's current lease rate is below 15 percent, he says.
Nordstrom declined to provide current lease data for Lexus Division. In March 2004, he told Automotive News that the luxury brand's lease rate then was about 50 percent of sales, down from about 60 percent in 2003.
General Motors says leasing accounted for 10 percent to 12 percent of its retail sales in 2003 and rose in 2004. GM's lease rate now is in the mid to high teens, says Paul Ballew, GM's executive director of global market and industry analysis.
Ballew says he expects that rate to remain stable for the rest of the year. He adds that leasing at Cadillac is higher than at GM overall, but would not provide figures.
GM "dropped below the industry average (in lease rates), and we probably went too low," Ballew says. "We pulled back because the industry got too aggressive on leasing. Now we're getting back to a more normal balance."