People aren't leasing cars anymore — and it means higher prices and worse choices for used car-buyers
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Vehicle leasing was down almost 50% last July, compared to January 2020.
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Rising lease costs and changing buying habits are driving the change.
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That means less supply going to the used vehicle market, keeping prices up and inventory low
Why people aren't leasing cars anymore
"This is happening for a couple of reasons. For one, leasing is getting more and more expensive. The average lease payment hit $661 in December 2022, up 33% from March 2020, according to Cox Automotive.Inventory constraints played a role in this decline, per TransUnion. Shoppers don't want to keep going back into the market to look for another vehicle every two to three years, especially given the inventory challenges seen at dealerships throughout the pandemic.
Car-owners, in general, are also holding onto their cars for longer. S&P Global Mobility found the average age of a vehicle was 12.2 years in 2022. Much of that has also been driven by the chip shortage's impact on the number and type of new and used vehicles that could be bought on dealer lots over the past few years.
Consumers are also willing to invest more money into maintenance as the value of their vehicles have increased and vehicle quality means a longer expected use life."
This is not good news for me as I've never bought new, almost exclusively CPO lease-returns. Maybe that is about to change
60% of the time, it works every time!
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@KngT You'd think with the used market gone crazy, residuals would be valued very high and the leasing would be a cheaper option.
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@KngT said in People aren't leasing cars anymore — and it means higher prices and worse choices for used car-buyers:
Consumers are also willing to invest more money into maintenance as the value of their vehicles have increased and vehicle quality means a longer expected use life.
Never would have guessed that something lasts longer the more you maintain it. Who'd thunk it?
I is smurt.
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@ibRAD I went on leasing forums and checked residuals for specific Mazdas as an example across 2020-2022 . Maybe a 2-5% increase over the years.
Don't think the manufacturers factored in these 2 years into their calculations. Obviously, higher the residual lower the lease payment why would they willfully want the consumer to pay less? Of course I know there are exceptions to this where some luxury brands artificially inflated residual values to make monthly payments more attractive- BMW, Infiniti but that was before 2020.
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@KngT When leasing isn't that much cheaper than buying, why lease?
Let's look at this Lexus.
Lease:
Finance:
Sure you owe ~$100 more per month if you buy, but long term you're probably better off. My BIL always leases their cars. They are always over miles so I don't understand it. At least with the recent prices, they have yet to get burned.
E90 M3
E92 328i
G01 X3 - wife mobile -
@e90m3 Lexuses generally have have high resale value but yeah this one is a no-brainer to just buy.
I'd say based on leasing forums, if you still want to lease get a Subaru Outback, Jeep Wrangler or Toyota Tacoma, then buy out the lease and resell it as they end up being worth more at he end of the lease even. They are closer to 70% residual compared to 50-55% for most other brands/models. -
@KngT There is also the return time condition check. What will they nickel and dime you for?
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@KngT said in People aren't leasing cars anymore — and it means higher prices and worse choices for used car-buyers:
Inventory constraints
THIS. The lease argument is very hard to make if you are unsure there will be a car you want to change out to in 2-3 years. For those who leased cars in 2018-2020 this probably really hit hard.
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@e90m3
(Canadian tax law but US works kinda similar so I hear)
Because a lease payment, including the tax portion, is an expense that can be claimed for tax purposes.
OTOH…
When you buy, the value of the vehicle gets capitalized and you can expense the depreciation up to 30% per year…but you can only claim 50% of the 30% in the first year. After 3-4 years, the tax write off basically becomes $0 -
@e90m3 I think you're headed towards buying/financing so this wouldn't apply to your case, but a few general thoughts about leasing -
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paying the average of $661 per month (or almost $800 in the case of the Lexus) on something you don't end up owning sounds absolutely insane to me. I know my brain is stuck in 2010 probably.
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If leasing, limit your down payment to as low a number as you can assuming it doesn't change the rest of the equation significantly (like your rate)...that's money gone forever, even if the vehicle ends up getting totaled the day after you drive it off the lot. Been a few years since I leased a vehicle, but pretty sure that's generally accurate?
11 WRX Hatch
Past: 89 E30, 03 S2000, 05 LGT Wagon, 05 ZHP, Spark+Bolt EVs -
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@KngT
I bought my K900 as a CPO lease return and got a great deal. I’ll probably just go back to buying new though. -
@KngT I'll probably not lease again. The big Germans seem to be not subsidizing them as much. Oh the deals I got back in the day.
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Interesting. I’ve got a Q7 lease that will be up in July. The dealer has already said leasing the same vehicle will be $300 more than what I’m paying now plus considerable down payment.
They’ve been sending me offer letters for a Q5 which is still $100 more than what I pay now with a considerable down payment.
This might be the end of my 14 year run with the brand. I’m not too sad about it either. I’m not really in love with anything they make at the moment.
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@KngT The reports that I've read have been predicting the "big correction" to happen to the auto industry sometime this year.
Rising interest rates have caused a slowdown in demand, and combined with rising inventory levels will push prices down.
Honestly the best thing to do for a consumer is to wait. The dealerships and manufacturers have enjoyed 2 yrs of record margins due to limited supply. Now they will resort to the only thing they know how to do to sell cars, which is discount. Things will be back to $10k discounts on pickups and $400 / month leasemobile Beemers by the 3rd Quarter.
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@KngT when we brought my wife's CX5 the dealer was actively discouraging us from leasing. I suspect they were getting more incentives out of finance sales than lease sales.
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@ZHP-Sparky-the-5th said in People aren't leasing cars anymore — and it means higher prices and worse choices for used car-buyers:
paying the average of $661 per month (or almost $800 in the case of the Lexus) on something you don't end up owning sounds absolutely insane to me.
I never understood this argument. Doesn't matter if you lease, take a loan, or pay cash - Depreciation $$$ hits you regardless.
A new car will depreciate and be worth less in 3 years. It can be advantageous to lease in some scenarios, not in others.
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@Future-Next-Gen-S2000-Owner said in People aren't leasing cars anymore — and it means higher prices and worse choices for used car-buyers:
@KngT said in People aren't leasing cars anymore — and it means higher prices and worse choices for used car-buyers:
Consumers are also willing to invest more money into maintenance as the value of their vehicles have increased and vehicle quality means a longer expected use life.
Never would have guessed that something lasts longer the more you maintain it. Who'd thunk it?
True, but newer cars generally require less maintenance, not more
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@KngT get use to paying more
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@ClassicDatsunDebate nope, tax laws are different. I leased in Canada and took advantage of the write off, doesn’t work in the US
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@dogisbadob -- I think both are true in a virtuous circle: people are willing to put reparative and preventive maintenance into relatively recent cars because (plus or minus some of those Rust Belt JRITS horror shows) they fundamentally have the potential to last longer; and this investment helps them reach this potential.
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@KngT said in People aren't leasing cars anymore — and it means higher prices and worse choices for used car-buyers:
This is not good news for me as I've never bought new, almost exclusively CPO lease-returns
Oh I think anyone that was on the fence on lease vs buy went with buy when interest rates were about 0 and they were cash rich from changed buying habits during covid. Unless incentives to lease go away things should go back to the previous state in due time. Just need to be patient.
