As new-vehicle sales slump, dealers and automakers are promoting leases with low monthly payments as an alternative to ever-lengthening consumer loans.
"Everybody is looking hard at leasing because of the awareness of this recent disturbing trend of longer purchase contracts," says Dave Conant, a large multifranchise dealer in Southern California.
"These 84-month loans — the percentage is rising dramatically and it's just unhealthy," Conant told Automotive News. "It's horrible for the buyer and it's not good for the industry."
Leasing is growing for both mass-market and luxury models. Buyers want to limit monthly payments, dealers say. And lease customers are likely to return to the new-vehicle market sooner than buyers who must pay off extended loans.
In 2007, leases represented 19.3 percent of new-vehicle sales contracts — up from 14.3 percent in 2003, according to J.D. Power and Associates' Power Information Network. In the first two months of 2008, Power says, the lease rate rose to 21.7 percent.
Last month, dealer Conant says, leases accounted for 38 percent of new-vehicle sales at his high-volume Honda dealership in the Los Angeles suburb of Cerritos, up from 27 percent in January and 20 percent in 2007.
American Honda Finance Corp. CEO Stephen Smith says his company is promoting leasing of new Honda and Acura vehicles. Honda brand's lease penetration rate rose from 15.6 percent in 2006 to 18.2 percent last year and 23.1 percent in January and February, Power says.
Conant notes that Honda Finance is offering a three-year lease on a 2008 Honda Civic LX for $1,999 down and $199 a month. A buyer with similar credit who sought to finance the same car for the same term with the same down payment would pay $509 a month, Conant says.