By Ray Birch
CINCINNATI—A big increase in consumers seeking to turn in their leases early is a good sign for the future of leasing—but also a signal to lenders that they’ll face greater competition from automakers for lending dollars, says one expert.
Scot Hall, EVP at Swapalease.com, told CUToday.info his company’s website this year is seeing a 30% increase over 2023 when it comes to the number of people using Swapalease.com, a website that matches consumers who want to exit a lease early with people seeking a short-term lease.
“For our company, we are very optimistic about what we see,” said Hall, who delved into what the trend may mean for automakers and credit union lenders. “There's going to be a high volume of lease returns this year. Right after COVID hit, all those leases, or many of those leases, will be maturing this year and manufacturers are essentially getting ready to have leases available for those folks to try and keep them within the brand. That's one of the reasons for this activity.”
Inventories Rise
The other primary reason, according to Hall, is auto dealer inventory levels are starting to return to more normal levels.
“Levels are still lower than what we were at traditionally (before COVID),” said Hall. “But we're seeing some of the highest levels we've seen in several years in terms of inventory—meaning that cars are stacking up on dealer lots and they're going to have to find ways to move them more quickly. That is going to require incentives.”
Hall said automaker incentives are already increasing this year.
Scot Hall
“And the money from manufacturers can be used for different purposes,” he explained. “It can be used for lowering interest rates on the finance side, or as a down payment for a lease, or some sort of a subsidy to at least to make the deal more attractive to consumers.”
What CU Leaders Should be Doing
Hall has some suggestions for what credit union lenders should be thinking about and doing.
“They should be very aggressive on lease offerings,” he said. “There's going to be the demand for it, especially with these cars sitting on the lots. If you can be the more attractive option over the next guy, in terms of being the lower in rate or providing advantages…It's really a great way to drive credit union brand loyalty.”
On the other hand, Hall warned credit unions could lose loyal car loan borrowers to the automakers.
“If manufacturers make some very attractive leases right now, it may give them an opportunity to steal some market share from others,” he said. “Lenders should be concerned about really stiff competition. The different manufacturers are going to get pretty aggressive this year, especially those on the more luxury vehicle side, because traditionally they've done that. And they’ve already been more aggressive on leases.”
The Forecast for This Year
Where will leasing penetration end up in 2024?
“Last year we were in the lower 20% range,” he said. “It's interesting, because I've been at this for a lot of years, and you see different numbers. Five to six years ago leasing penetration was in the lower 30% range. It peaked there. I believe in ’24 we could see that rise to the mid-20% range.”
But, more importantly, Hall believes, the leasing penetration level will continue to increase in the coming years.
“In the next three years we may see a new peak in terms of our new high,” he said. “Last year there were about 15.5 million new vehicle units sold. I think the highest we've ever done was about mid-17 million. This year we could get close to 16 million. But I don’t think there's going to be enough volume or production to move it much past that.”
Hall emphasized that interest rates are, comparatively, high now.
“And that's still playing a little bit of a factor here,” he said.
Higher-End Vehicles
Hall said the increase in Swapalease.com listings have been across the automotive spectrum. He pointed out, however, that leasing tends to lean toward higher-end vehicles, noting that BMW in the past has claimed a large percentage of the entire leasing share.
But Hall added the number of more “everyday” cars being leased has been rising as auto prices have skyrocketed. As consumers turn in their leases this year and look for another lease, Hall said many will encounter “leasing sticker shock.”
“There's many factors involved here. Interest rates aren't helping,” he said. “Car markets have been in a bit of disarray during the last several years. That can throw off the residual values, to some degree. I think 2024 will be an interesting year because there's so many things moving right now—the EV market has changed significantly, interest rates are kind of in flux, and how will politics during an election year play into this, good, bad or indifferent.”