Auto Leasing Could Be Past Its Peak, As Incentives Shift To Low Rate Loans


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, I cover the pervasive, yet little-understood auto industry. Opinions expressed by Forbes Contributors are their own.

Reversing a long-term trend in the auto industry for the second quarter in a row, leasing accounted for a slightly lower percentage of new-vehicle volume compared with the same quarter a year ago.

Leasing remains strong, according to Experian Automotive, a unit of the Experian credit reporting bureau.

However, leasing accounted for 29.14 percent of new vehicles retailed in the third quarter, down from 29.49 percent a year earlier, Experian said in a report earlier this month.

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In leasing, the customer in effect borrows the difference between the upfront cost of a new car or truck and its predicted value at the end of the lease, the so-called residual value.

That makes for lower monthly payments compared with a loan, where the customer borrows the entire amount. According to Experian Automotive, the average new-vehicle lease payment was $412 in the third quarter, vs. $502 for a loan. The tradeoff for consumers is, a lease customer owns nothing at the end of a lease, whereas a loan customer typically owns equity in a trade-in, if they don’t own the trade-in outright.

Leasing was steadily gaining since 2009, when the bottom dropped out of auto sales in general and leasing in particular. The credit freeze that immediately preceded the Great Recession made less money available for both auto loans and leases.

But leases were hit particularly hard at the time, because in a recession, the car companies and their “captive” lenders on average didn’t want to be placing bets on the value of 3-year-old used cars and trucks. Most leases are for 36 months.