After a few years of record sales and rising prices, new vehicle sales are expected to drop in 2019. As dealers and consumers struggle to find opportunities in the new vehicle market, leasing presents a possible solution for both parties.
Consumers want new vehicles loaded with the latest features and technology, and they can’t get enough of larger models. In 2018, 69 percent of new vehicles sold were light trucks (SUVs, crossovers, and trucks) — an unprecedented figure. Unfortunately for shoppers, these champagne tastes come with a hefty price tag. The word “affordability” has been all over the auto industry lately, and for good reason: new vehicle prices still haven’t found their ceiling, and the continued uptick is starting to exhaust consumers’ ability to absorb the expense. Rising interest rates aren’t helping either, especially since they’ve virtually eliminated zero-percent finance incentives.
The new vehicle market is between a rock and a hard place; consumers still want larger, newer vehicles they can afford, but OEMs can no longer justify the cost of subsidizing low interest financing or cash-on-the-hood incentives. In this environment, leasing is a valuable way for dealers to sell more cars and get customers into the vehicles they want at prices they can stomach.
It’s not just Millennials! Consumers are increasingly focused on their monthly obligation as opposed to the long-term total cost of a vehicle. This attitude is perfectly suited to leasing, since monthly payments are lower than the same vehicle financed with a loan.
New Car or Bust
Consumer demand for the latest-and-greatest in vehicle features could be a boon to leasing in 2019. Despite rising prices, some buyers just want a new vehicle, and they’re willing to spend good money to get what they want. For these customers, leasing presents a win-win: they’ll get the brand-new vehicle they want for a lower monthly cost. OEMs may yet sweeten the pot by boosting leasing incentives. Consumer preferences for light trucks have already created some excellent deals on new-car leases. Time will tell if manufacturers decide that the cost of additional incentives is worth the gain in sales, especially on high-margin light trucks.
Return of the Lessees
Leasing levels peaked in 2016 but did not drop off as significantly as some analysts expected in the years since. They’ve held steady near 30 percent of total new vehicle transactions each year. These peak years may have some great benefits for lease penetration in 2019 as those buyers come back to the market. Lessees will be returning to dealer lots to find higher interest rates, higher prices, and fewer financing incentives. And while they’ll find that overall leasing prices are higher also — a rising tide lifts all boats — another lease may still be their preference (or best option). Given the steady popularity of leasing since 2016, that’s a lot of opportunity!
Is your F&I department ready for lease customers? With National Auto Care’s brand-new Pinnacle + 6 program, it can be! Pinnacle + 6 is our best program made better: exclusionary coverage “plus” coverage for 6 consumable items often taken for granted when a vehicle is new.
National Auto Care Corp. provides F&I products, administration, consulting services, training and marketing support to independent agents, insurance companies, financial institutions, third-party administrators, and credit unions. National Auto Care Corp. focuses on increasing agent and dealer profitability by providing unique F&I products in protected markets. National Auto Care was named a 2017 Top Workplace in Central Ohio, and honored with a Dealer’s Choice Gold Award for F&I Products.