Off-Lease Boom Means Major Conflict For All Automakers
The Great Recession has given us so much since it began five years ago with the fall of Lehman Brothers and Washington Mutual, from underwater mortgages and high unemployment, to bailouts of the financial and automotive manufacturing sectors and credit freezes.
Regarding the last item, a byproduct from said freeze will flood automakers with the potential to retain and steal customers when more and more leases draw to completion in the next year.
Leasing has come back into vogue as of late due to low interest rates, easy credit terms and improved residuals, allowing automakers to keep more of their profits while giving the lessee lower payments. In turn, 23 percent of new-car registrations through September 2013 are through leases, a number that should rise as wave upon wave of lease customers return to the showroom for the latest and greatest.
This fact is not lost on any of the automakers wanting to bag and tag as many customers from the booming off-lease salmon run as possible. Case in point: GM, who rolled out their lease-conquest program nationwide last month, offering $500 through January 2, 2014 to non-GM customers to lease most of the Chevrolet and all of the GMC lineup. Meanwhile, Hyundai will offer more early-termination deals so that their customer base never even make it to the run.
And how long will this run last? ALG Inc. president Larry Dominque says automakers should have plenty of fish to catch until 2017, with those whose customers are loyal will focus on retaining their stocks while those who ready to fill their coolers will be aggressive with their bait, such as lower payments and nicer incentives.
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This seems shortsighted. First, if bunches of people are turning in their leases in the next year or so, won't that bring used car prices down? Secondly, if incentives (buy and lease) keep getting better, won't that reduce the appeal (and cost) of a used car even further? I don't see the current high value of used cars sticking around much longer, if I were in the market that would definitely sway my decision towards leasing.
Leasing today definitely makes good sense. It's hard to know for sure what the used car market (and then residuals on new leases) will do. Cars today last longer than they ever have, and really aren't all that hard to work on. Still this doesn't change the two facts that less people are willing to work on their own car, and people want new(er) cars rather than to keep the same car for 200k.
I remember living in Detroit in the early part of the 00s. Leases were big and Ford seemed to be pushing them harder than anyone with their "Red Carpet" lease specials. Avis Ford literally had a used car lot almost completely full of Ford Taurus and Mercury Sables (sedan and wagon) with nice option packages and around 30,000 miles on them. If my purchasing power had been a little better I would have ended up with one. Although the 1997 Escort wagon I purchased served me well till the ex-wife took it in 2009. I look forward to lots full of gently used lease vehicles at steep depreciation again. :)
I'm debating buying out my 2010 Fit Sport when the lease is up in 3 months, so I guess I'm one of those off-lease buying people :) they want $9100 for it plus tax, comes to a hair over 10k.. I've only put 40k miles on it in 3.75 years. New '13 would cost me about 330 a month to lease, or $24.5k w/tax give or take. Most asking prices at dealerships for a '10 are around 14-15k around here, private is around 12.5-13... plus 13% tax on both.