The rise in leasing has set some industry insiders on edge, including AutoNation Inc. CEO Mike Jackson, who said last week the industry has entered dangerously high leasing territory.
But lenders have already begun to adjust their leasing portfolios, and some experts say that if managed correctly, high leasing levels could still be beneficial.
Ally Financial, for example, is prioritizing used-vehicle financing rather than aggressively seeking leasing growth. And Jeff Dyke, Sonic Automotive Inc.’s executive vice president of operations, said last week that BMW has been discouraging its dealers from doing more leases and encouraging them to focus on loans, even though customers can get a lower monthly payment on a lease.
“It’s a conundrum right now and something we have to figure out,” Dyke said. “The residual value is going to have to go up” so consumers don’t take a hit in the wallet at the end of the lease term, he said.
Automakers have a role in managing residuals, too. “As long as the OEMs keep proper supply in check, theoretically, residual values will remain within the range of their initial projections,” said Pete DeLongchamps, vice president of Group 1 Automotive.
Leasing rose slightly in the fourth quarter, with 28.94 percent of vehicles leased vs. 28.87 percent a year earlier. Still, in a shift from the past few years, “leasing has already pulled back a little bit,” said Melinda Zabritski, senior director of automotive finance for Experian Automotive. If leasing were to grow beyond 30 percent, she said, it would boil down to how well residuals are set. “It’s more of the management behind the leasing versus the number itself,” she said.
Consumers still want a lease option, Penske Automotive Group Chairman Roger Penske said.
If consumer demand continues, lenders set residuals accurately and automakers keep a leash on supplies, high leasing levels are likely here to stay.
Jamie LaReau and Laurence Iliff contributed to this report.