By Ray Birch
CINCINNATI—Expect interest in leasing programs to pick up among lenders next year, including on used cars, and one of the reasons is financial institutions won’t be competing against many captive finance company incentives for a good stretch of 2022, according to one forecast.
Scot Hall, EVP of Swapalease.com, spoke with CUToday.info about what he sees ahead for automobile leasing in 2022, emphasizing supply chain problems will persist and that its affects will be felt.
Hall does not foresee the supply chain problems lessening.
“I think we're finally starting to see production going in the right direction,” said Hall. “But there’s going to be some lag time to get caught back up. I don't think we're going to see many new cars on the lots until the beginning of quarter three, and it may take a little longer.”
An ‘Ideal Time’
As credit unions and their members are all too aware, Hall noted the used car market has been extremely hot and used values are at all-time highs, and the result could be leasing programs on used vehicles could increase in number.
“Now would be an ideal time, with all the used cars that are available…It makes all the sense in the world to do leasing on used,” said Hall, who acknowledged such programs have been slow to catch on.
What will help bank and credit union lenders competing in the leasing space is there will continue to be few incentives on new cars offered by the automakers, according to Hall.
Scot Hall
“Whether it's manufacturer's low-rate financing or cash back on a purchase or even money towards supplementing a lease, I don't think you're going to see many incentives anywhere, because the automakers don’t have to offer them now (with demand for a new cars so high),” explained Hall.
When production ramps up to more normal levels later in 2022, manufacturer incentives will grow, Hall predicted.
“I'm talking about both purchase and lease incentives,” he said. “Again, I think that will be either late in 2022 or even early in 2023.”
Rapidly Growing Market
The national leasing rate—the percentage of new cars sold that are leased—had been rapidly growing about two-to three years ago, hitting a high of almost 34%. But that percentage, noted Hall, dipped last year to the 25%-26% range.
Another indicator of changes in the market that has, in this case, not been in plain sight is the absence of ads promoting automobile leases Christmas gifts, a traditional automaker approach, Hall said.
“Dealers used to advertise buying or leasing a car at the end of the year, offering deals, as they wanted to move the current year cars they had off their lots to make room for new-year models,” said Hall. “But they don’t have that many new cars on their lots now.”
The Forecast
What will drive the return of incentives in the market is a good old-fashioned supply of new cars on dealer lots, Hall explained.
“As far as new cars on the lots, that will remain fairly stagnant in quarter one, maybe start to see a bit of improvement in quarter two, but, as I said, I think you'll see some growth in quarter three,” forecast Hall. “As a result of more vehicles being available, manufacturers have to push vehicles out the door in some way.
“I think we'll see some growth and lease penetration on the new car side as we move forward in 2022, as well,” continued Hall. “I can’t say about used leasing, as no one seems to track that. However, there's a fair supply of used vehicles out there, which dealers are counting on to keep sales moving. I speculate that there are some companies that will dabble in used car leasing.”
Difficult to Exit
Hall noted something new has occurred in leasing due to the pandemic forcing a vehicle supply shortage—automaker finance arms are making it more difficult for some lease holders to exit a lease early.
“A lot of these leasing companies are not letting third parties buy out their leases,” he explained, noting the automaker finance arms control the lion’s share of leasing today. “As a result, they want more control.”
Hall said years ago these leasing companies cared most about getting a contract signed. Today, they have more plans for the cars they are renting to consumers.
“Now they have a whole plan in front of them,” explained Hall. “They say, ‘We will lease you this new car, but we're going to get this back to the dealership in the end to sell it as a certified pre-owned vehicle.’ They might even lease it again. We're starting to see more companies take a similar approach, not necessarily because they have a long-term plan in place to do so, but because this helps funnel cars back to their make dealership. Right now Acura Financial will only permit an Acura dealer to pay off a lease.”