Vehicle leasing is steadily losing its utility for both customers and dealers, according to data from TransUnion.
During the onset of 2020, vehicle leasing comprised over a third of the market. However, as of July of last year, that number dropped down to 17%, just over half the amount it was just before the COVID pandemic. The number of customers who chose to lease a second time also dropped by 40%, while those who ended their lease half a year early or more rose to 63%.
These numbers represent a fairly significant change in consumer behavior. Although leasing never accounted for a majority of the market, it had become a way to entice customers with cheaper monthly payments. However, when looking at market trends for the last three years, the reasons become clear. First, despite the purported money-saving benefits of vehicle leasing, monthly payments rose 33% between 2020 and 2023, reaching an average of $661 last month. While prices have risen across the board due to high inflation and interest rate hikes, for the cost it makes more sense for drivers to own their purchase outright. Futhermore, from a buyer perspective, the struggle of replacing a car every time a lease period ends can be more hassle than it is worth, especially when vehicles now last longer and need less maintenance. The drivers of today, outside of the luxury market, would simply rather hold onto their vehicles until they break apart.
If vehicle leasing is to become a viable method for attracting customers again, dealerships will need to carefully monitor the market to reintroduce competitive rates as soon as possible. However, that time may still be far off, given the stress external factors have placed on the industry. In the meantime, retailers can focus on recovering their lease business through consumer-friendly promotions, service guarantees and sales tactics. At the end of the day, inventory scarcity and supply chain disruptions may be out of the hands of automotive retail, but the customer experience is not.
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