By Ray Birch
CINCINNATI—Several factors are lining up now to raise greater interest in leasing, says one expert who believes incentives from automakers on used car leases could begin to emerge.
Scot Hall, EVP of operations at Swapalease.com, shared with CUToday.info his insights into the latest trends in auto leasing to which credit unions should be giving attention, saying there are a lot of “moving parts” that should lead to leasing picking back up this year, heading back to levels leasing once claimed. “
There really is a great deal going on now that is affecting leasing,” he said.
Less than three years ago leasing was approaching nearly one-third of all new car deals, but that has slipped to about 25%, data show.
Instead, the factors now influencing consumers’ decisions when it comes to auto leasing include higher gas prices, lack of availability of new and used cars, and sky-high new and used car prices, explained Hall, adding it’s not just lower monthly payments anymore that are turning consumers to leases.
But what will markedly affect lease monthly payments are the high values used cars are now holding.
“That means greater residual value in the car, and therefore a lower lease monthly payment,” said Hall. “It’s an inverse relationship. Used car values and prices are at an all-time high.”
Multiple Issues
The high gas prices brought on by the temporary problems in the Southeast caused by the ransomware attack on the Colonial Pipeline is just one of the issues driving gas prices up and people wanting to get out of their gas-hogging SUVs, said Hall.
“It’s interesting. You kept hearing about this this gas shortage due to the pipeline problem, but a number of weeks before that happened a truck driver shortage had come up—a shortage of drivers qualified to drive a gasoline tanker. These drivers have to have certifications, because they are really driving a bomb on wheels. They have to be good.”
Hall contended media reports drove more of the gas shortage problems than the actual ransomware attack.
“The news reports scared everyone and led people to run out and buy gas, therefore creating a shortage,” said Hall.
Scot Hall
Now, with summertime travel here and the pandemic restrictions lifting, gas prices are just naturally rising, added Hall.
“We have, then, three factors affecting gas prices,” he said.
Wiping Out Negative Equity
Another reason leasing is seeing greater attention is the record values used cars have been holding, wiping out some of the negative equity in cars Americans are driving, according to Hall. Mounting negative equity in autos is an issue CUToday.info has reported on extensively.
“If someone wants to trade out of their low-gas-mileage vehicle into something more fuel efficient, there hasn’t been a better time in a while than right now,” Hall said. “Their vehicle will never be worth more than it is now.”
The lack of inventory in new cars—due to auto plants slowing production as the result of the microchip shortage—has in turn led to a shortage of used cars, as well, which has then led many consumers to consider taking over an existing lease as a means to get the car they want.
“We have never seen such demand that we have now on sawpalease.com,” said Hall, whose website pairs consumers looking to exit a lease early with those seeking to pick up a short-term lease. “That really indicates the average consumer is having difficulty finding their next vehicle and they're looking at new and different channels.”
Rumblings Over Incentives
Hall said there are rumblings about the automakers offering fewer incentives on new cars due to the lean inventories, whicj may in turn provide more incentives for leasing—even incentives for leases on used vehicles, he said.
“We are seeing fewer incentives on new cars now, such as cash rebates,” said Hall. “I think we are going to see a greater focus on leasing from the carmakers, and a greater focus on used car leasing.”
Hall also expects to see more consumers ask for lease extensions, as they attempt to ride out the high new car prices now. Hall expects the U.S. auto market will see more normal prices possibly later this year, but certainly early next year.
“Inventory will pick back up,” said Hall. “It won’t happen overnight, but by late 2021 we’ll begin to see a much more normal market—as long is there isn’t another bullet in the chamber following all the problems that we have had this year.”