Car leasing hit an all-time high in popularity with 4.3 million vehicles leased in 2016, a 91% growth since 2009, and some are questioning if we'll see this trend slow down.
Regardless, the growth of new-car leases has drastically affected many areas of the car market. There has been an uptick in used cars available for sale, and used-car leases are also becoming a viable option for car dealerships and car shoppers.
Here’s what you need to know about the leasing trend.
US Manufacturers Went After Leases as a Way to Boost Sales
Another huge change in the lease market is the shift from foreign manufacturers to US manufacturers. US manufacturers now lead the leasing market in volume of vehicles leased, and this statistic continues to grow.
In 2009, Japanese manufactured vehicles dominated the lease market at 58%. German manufactured cars accounted for 24% of lease vehicles, and US manufacturers only accounted for 18% of the market.
Since then, US manufacturers have focused on car leases as their core sales strategy and now dominate the market. In 2016, 52% of leased cars were US, 37% were Japanese, and 11% were German. The 34% increase for US manufacturers doesn’t paint the whole picture, though. In 2009, US manufacturers sold 159,244 leased vehicles, whereas, in 2016, US manufacturers sold just under 2 million leased vehicles. These numbers just show how quickly the leasing trend is growing.
General Motors dominated in both the total number of car sales and leases in 2016, with over 3 million vehicles sold and 845,891 vehicles leased. Ford and Chrysler also saw big sale and lease numbers in 2016. All three companies saw a huge increase of lease penetrations from 2009 to 2016. GM improved their lease penetration rate by over 25%. Foreign manufacturers also saw an increase in their lease percentages from 2009, but at a much smaller rate than GM, Ford and Chrysler.
Car Lease Volume Of Top Eight Manufacturers
Non-Luxury Cars Are Dominating the Lease Market
While leasing allows drivers to get higher-end vehicles for an affordable monthly payment, the leasing trend is being dominated by non-luxury vehicles. We sampled the top eight car manufacturers to see which company held the most sales. FCA, Ford, GM, Honda, Toyota, Hyundai/Kia, BMW and Mercedes-Benz held 74 to 80% of total car sales between 2009 and 2016. Between these seven years, these manufacturers have continued to manufacture and lease more non-luxury vehicles over luxury ones.
In 2009, 24% of leased vehicles were luxury vehicles, and the remaining 76% were non-luxury vehicles. In 2016, luxury vehicle leases dropped to 11% and non-luxury vehicle leased increased to 89%. The number of non-luxury vehicles jumped from 668,764 in 2009 to almost 3.5 million in 2016.
Non-luxury manufacturing will continue to grow and dominate the leasing market. This is especially true since the quality of non-luxury cars has surpassed the quality of luxury vehicles, according to the recent J.D. Power and Associates Initial Quality Study. It is now possible to get an affordable vehicle with the same quality and feel as a luxury car, thanks to modern technology.
Millennial Lead the Way for Leasing
Another reason why leasing continues to grow in popularity is because it targets millennial buyers. Millennials make up the largest portion of lessees at 12%, which isn’t surprising since leasing comes with smaller monthly payments and a shorter time commitment than a traditional five-year car loan.
Millennials like the idea of having the newest, better-equipped vehicle for an affordable monthly payment. After their lease is up, the lessee is free to get a new model without having to worry about selling an old vehicle. The leasing life allows millennials to keep up appearances as they grow in their professional life. Another bonus to leasing is that the new vehicles are usually under the manufacturer’s warranty, meaning less maintenance and repair worries for drivers.
All consumers, especially millennials, are choose leasing because the upfront costs are less. On average, lease payments are $120 less than a monthly car payment. For larger pickup trucks, that average monthly payment is $206 less. This is a significant difference for those who are on a tight budget.
Lease Trend Good News for Used Car Buyers
The consumers who benefit the most from the leasing trend are those in the market for a used car. Buying an off lease vehicle allows you to purchase a like new vehicle with low miles for the cost of a used vehicle. A leased vehicle has already done most of its cost depreciation, therefore if you buy a off lease vehicle today and sell it a month later, the price gap should be minimal. Many off lease cars are still under manufacturer warranty too, making them a great deal for less.
So, what should you look for in an off lease car?
Generally, most off lease vehicles will be in great condition, since the lessee has to pay fines for poor vehicle maintenance or driving too many miles. However, car shoppers should still look for the following when considering buying an off lease vehicle:
- How old is the vehicle?
- How many miles does the vehicle have?
- Is there any damage on the interior or exterior?
- What are the Consumer Reports reviews for this year/model?
- Is the warranty still intact? If not, how much would it cost for the extended warranty?
- Have the service records been kept up to date?
Even if the off lease vehicle looks and drives well, it is important to look up reviews for that make and model. Since an off lease vehicle is about three years old, there should be a lot of consumer reviews for the vehicle.
Look for any negative reviews, as well as if the car manufacturer did a major overhaul of the model the year or two after. For example, Consumer Reports rated the 2014 Jeep Wrangler Unlimited the worst car of the year, but the vehicle still has good reviews from Jeep fans. While the 2014 edition of the Wrangler might be stellar in driving rocky terrains and have a good off lease price, the extra cost of gas and clumsy drive for your daily commute would make the vehicle an unwise purchase for you.
Protecting Your Off Lease Car Purchase
No matter what vehicle you purchase, it is important to do your homework. Don’t assume that the dealership is being completely transparent about your off lease vehicle purchase. Keep these three things in mind before finalizing your purchase:
- Did you check the VIN history? The VIN history gives a good overall of your car’s history. Unfortunately, unreported accidents or maintenance will not appear on this report, but the report can reveal any reported problems and how many former drivers/lessees the vehicle has had.
- Did you do an inspection? You or someone you trust should inspect the vehicle thoroughly. Have a look under the hood and drive a little harder than you normally would on your test drive.
- Is your vehicle under warranty? Consider shopping at a car dealership that offers certified pre-owned vehicles that come with a pre-owned warranty. If the dealership does not offer this automatically, consider purchasing an extended auto warranty.
Find out how much your lease is going to cost you before you go to the dealership. Our calculator helps you find out how much your car lease payment will be and what your lease end buyout price will be.
As the leasing trend continues, more used cars will be available for purchase each year. Buying an off lease car gives consumers the best of both worlds - a low mileage car that looks like new at a used car price.