New Car Lease Turn-Ins are Changing the Used Car Market
Auto dealers love a good new car lease, for more than one reason. First, when they lease a new car to a customer, they know exactly when the customer will be turning it in. Second, because the customer must return the leased vehicle to the dealership and presumably needs another car, the dealer now has a “captive” audience with that customer. (Hopefully, the customer had a good experience with the original lease.) Finally, that once-new car has now become a gently used vehicle, which is like gold to an auto dealer’s pre-owned inventory.
Benefits of a New Car Lease for a Dealer
Think about it: It’s a tremendous benefit for a dealer when he can lease a new car to a customer; put that same customer another into new vehicle when the lease is up; then later sell the originally leased vehicle to another customer.
The allure of leasing from the customer’s side is lower payments and the ability to drive a new car every few years. They may also purchase their leased vehicle for a pre-set price upon lease completion, giving them another potentially appealing option.
The Growing Popularity of the New Car Lease
About three years ago the new car lease began to regain popularity. Because of the number of returns expected, 2014 is projected to be a banner year for lease returns.
While dealers are genuinely excited over the number of quality used vehicles that will be available to them, there is a negative flip side. Because of supply and demand, the value of these used vehicles could take a small hit. A recent Wall Street Journal article featured Jonathan Banks, Executive Automotive Analyst for the National Automotive Dealers Association (NADA). In the article, Banks says used-car prices rose 18% from 2007-2013, largely due to the lack of leases delivered during 2008 and 2009. This year, however, they’re expected to fall by 1%.
As these numbers indicate, new car leasing is gaining popularity. Today, nearly one-quarter of all new cars sold (24%) are leases. This is still a far cry from the late 1990s, when new car leasing was at its peak – but this number is expected to continue growing in the foreseeable future.
According to Experian, the automotive data company, the average current monthly payment for a new car lease is $414, and the average lease length is 35 months.