Leasing is not right for everyone, but consumers who prefer the alternative to purchase face favorable market conditions, because lenders are providing competitive financing, used vehicle prices are at record highs and interest rates remain extremely low, experts said.
"It's back and it's a pretty strong option for a lot of vehicles," said Tim Doran, executive vice president with the Dayton Area Auto Dealers Association.
Leases as a portion of retail vehicle sales nationwide dropped sharply to 12.7 percent in 2009 from 18.4 percent in 2008, according to Kelley Blue Book. But it bounced back the following year, and so far this year, leasing accounted for 19.4 percent of retail sales — the highest percentage since at least 2006.
Before the recession began, trucks and sports utility vehicles represented a large portion of leased vehicles, but when gas prices soared above $4 per gallon, car manufacturers shifted their production strategies to turn out more fuel-efficient vehicles, said John Sternal, a spokesman for Swapalease.com, an online lease transfer company based in Cincinnati.
Leasing companies lost money on their agreements because the resale value of the leased cars and trucks nosedived, he said. Leasing also declined because access to credit dramatically decreased.
But the auto market and gas prices stabilized, and demand for larger vehicles returned, Sternal said. Lenders and auto-makers are once again utilizing leasing to move inventory.
Leases appeal to consumers because they often require less money down and smaller monthly payments than purchasing a vehicle. Consumers can also afford to lease vehicles they could not afford to buy.
“You can get more car for your money,” Sternal said. “Consumers will say, ‘I can afford to pay $350 per month for a car today, and I can either buy a Ford Focus or I can lease a BMW 3 Series for the same amount.’”
Leases account for between 50 to 60 percent of retail sales of luxury vehicles, Sternal said.
Extra costs to lease
Consumers also get to drive a new car or truck every couple of years when their leases expire if they decide not to purchase the vehicles. Some consumers prefer to always drive a new vehicle that is still under the manufacturer’s warranty.
The downside of leasing is that consumers will not own the vehicles they are making payments on. Consumers also must pay extra if the vehicles are not returned in a certain condition, and there are mileage restrictions.
It also can be expensive to terminate a lease early.
The cost of the lease depends on the vehicle’s anticipated value when the lease expires, which is called the vehicle’s residual value, said Doran, with the local auto dealers association. With leases, consumers pay for the depreciation of the vehicle while it is in their possession, he said. Other variables in the price include interest rates and the profit margin of lenders.
“You are just paying for what you use,” Doran said. “Depreciation, interest and profit are the only three factors that go into a lease.”
Leasing is most likely the least expensive way for most people to drive a new car, and consumers do not have to worry about depreciation and future market value, said Al Siewe, general manager of Beau Townsend Nissan in Vandalia. Leases account for more than half of the dealership’s business.
“If you lease the car, and at the end of the lease you really like it and the car is worth more than the residual value, you can buy it if you want,” he said. “But if it is worth $2,000 less than the residual value, you just hand the keys back and say, ‘Thank you very much.’”
The average life of a lease today is between 24 and 36 months, compared to 48 months before the recession, experts said. Consumers are less willing to be locked into long-term payment periods.
But consumers can get out of their leases by transferring them to others using lease-trading Websites, such as Swapalease.com and LeaseTrader.com.
Swapalease connects consumers who want to take over a short-term leases with people who want to get out of their leases because of necessity or they want to upgrade to a newer vehicle, Sternal said.
Leasing activity is on the rise in Ohio, he said. Listings on Swapalease across the state are up 38.3 percent from the beginning of the year, and searches for listings are up almost 66 percent.
“Ohio is seeing faster growth in leasing than it has in the past,” Sternal said.
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