By on March 6, 2019

Image: Toyota

While U.S. new vehicle sales are expected to drop in 2019, average transaction prices and interest rates are climbing fast. That spells a potential bad day ahead for drivers reaching the end of their lease, Edmunds warns.

Those looking to get behind the wheel of a new sedan in the coming year might have to spend some quality time with a calculator.

The rise in popularity of leasing after the recession, coupled with a prolonged peak in U.S. sales that began around 2015, means 2019 will see a record number of lessees — 4.3 million — turning in their vehicles.

New features introduced during that time frame, especially safety tech, sent ATPs soaring. It’s an uneven surface, however. As crossovers and SUVs remain an automaker’s bread and butter, the declining passenger car market has many automakers rethinking their “bury it in incentives” strategy. We told you last week that pricing strategies are in flux, with many OEMs looking to squeeze extra profit from their remaining sedan sales.

That’s pushing window stickers in certain segments up at a faster clip than others. For a returning lessee looking to upgrade their three-year-old wheels, that reality, plus other factors, could mean a quick leap out of the segment.

“Demand for sedans has fallen off so sharply that they don’t hold their residual value like they used to, making lease payments much more expensive,” said Jessica Caldwell, executive director of industry analysis for Edmunds. “Couple that with the record-high vehicle prices and soaring interest rates, and car shoppers who may have only ever leased are now going to be facing some tough decisions.”

Edmunds points to four very popular models to tell the tale — two sedans and two crossovers. Comparing average lease cost (over a 36-month term) between a Honda Accord LX and a Honda CR-V LX AWD, analysts revealed a price gap of $1,746 for 2016 models, with the higher outlay going to the crossover fancier. In 2019 models, an average CR-V lease will set the consumer back just $37 more than the sedan.

There’s a similar gap between the Toyota Camry LE and the Toyota RAV4 LE AWD, with an average 2016 lease showing the crossover costing $2,318 more over the term. In 2019, it averages out to $1,313 more.

Edmunds points to well-stocked certified pre-owned lots as a potential draw for those returning customers.

Of the models with the largest increase in average lease cost between 2016 and 2019, the Camry SE takes the top spot among vehicles studied. A three-year lease on that sedan will cost the customer, on average, 26 percent more than before. A 2019 Corolla LE saw an average 22 percent increase in total lease cost, with the Accord LX rising 21 percent.

In contrast, mid-range AWD crossovers like the Ford Escape, Nissan Rogue, and Toyota RAV4 show an average increase of between 12 and 14 percent. (Of note: the 2019 Nissan Altima 2.5 S stands out as a relative leasing bargain among passenger cars. That sedan’s lease rose only 5 percent over the past five years.)

What to do? Prepare to change your plans as lease return time approaches, and do your homework. Edmunds suggests extending the lease for those who can, or kicking brand loyalty to the curb in the pursuit of conquest deals from rivals. It wouldn’t hurt to look up your current vehicle’s actual residual value, either. Any potential equity could be used to lower future lease payments on another vehicle.

[Image: Toyota]

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57 Comments on “Returning Lessees Should be Prepared for a Price Shock...”


  • avatar
    sportyaccordy

    Supply and demand in real time. Pretty amazing.

    Not sure if the Japanese play the same residual games as the Germans… but I’d have no qualms jumping into a 3 year old Camry. Maybe it’s time to bring used leases out of the shadows.

    • 0 avatar
      PrincipalDan

      Used lease returns are generally found over on the CPO lot.

      • 0 avatar
        sportyaccordy

        Used leases as in leases on used cars. Sorry for the ambiguity.

        • 0 avatar
          PrincipalDan

          lol, “Used Car Lease” sounds to me like “Rent A Wreck”. ;-)

          Back when I lived in Southfield, MI and it was common practice for the Big 3 to shuffle unloved or slow selling cars off on employees in super cheap subsidized leases there were several of the local dealers who would have sections of the used car lot STUFFED with very similar make/model/option package cars.

          In 2002 Avis Ford had Taurus/Sable sedans/wagons with 30,000 miles-ish and must have had 30 to 50 of them. Unfortunately I could only afford an Escort Wagon.

    • 0 avatar
      ToddAtlasF1

      “Supply and demand in real time. Pretty amazing.”

      This may be occurring with residuals, but it doesn’t explain why new vehicle transaction prices should be going up as demand evaporates. On the other hand, I wonder how much of this is wishful thinking on the parts of the manufacturers being reported as reality by autojournos. My friend Jenny just bought a new(unregistered anyway) 2018 Honda Accord Touring for pocket change. I don’t know which engine it has, but I’m pretty sure she paid less for it than the dealer did including any holdbacks.

      • 0 avatar
        James Charles

        Todd,
        US manufactured vehicles are feeling starting to feel the impact of Trump’s metal tax as well as interest rate rises by the Fed. Remember even the car yards borrow. Look at the costs across the whole industry.

        • 0 avatar
          ToddAtlasF1

          Relatively high prices of used vehicles and in demand new vehicles have been driven by ZIRP. Dealer groups could hold onto inventory waiting for people to make bad decisions because they had no carrying costs. As the fed tries to sabotage Trump’s presidency and get everyone back on the globalists’ plantation, that won’t work any longer. They will have to turn their inventories in order to make any money before floor plan expenses eat them alive.

      • 0 avatar
        Scoutdude

        A huge factor in the increase in price is that the RAV-4 is now the best selling passenger vehicle in the US. So Toyota doesn’t feel the need to buy the Camry that #1 seller title with heavily subsidized leases. That took a lot of pricing pressure out of the market.

    • 0 avatar
      vvk

      > I’d have no qualms jumping into a 3 year old Camry

      Except, it may be more expensive than the new one. Or not much less expensive anyway.

  • avatar
    Vulpine

    … and now you see one reason why I don’t like the idea of leasing cars. It’s only a long-term rental and the rates can change drastically, with no notice.

    • 0 avatar
      FreedMike

      Uh, no, the rate can’t change once you’re in a lease. Your payments are the same for the life of the contract.

      What CAN happen is that the NEXT lease AFTER the one you’re in now can be more expensive, if a) interest rates go up, or b) you’re financing more.

      • 0 avatar
        Vulpine

        “Uh, no, the rate can’t change once you’re in a lease. Your payments are the same for the life of the contract.”

        — Somehow I knew that line would come up, even though I never implied otherwise. Once you sign that rental agreement, the rate is locked until you sign and update. But that doesn’t stop the Lessor from changing the rate on the same vehicle (even if we assume a one-year’s difference with no OBVIOUS changes) to someone else. Most certainly the next lease will be more expensive unless you choose to lease a completely different and likely lower-priced vehicle.

        • 0 avatar
          FreedMike

          So…the lease company can charge you one rate and another customer another rate when both of you are buying the same kind of vehicle? Well, yeah, but that happens with standard installment financing. It’s all dependent on your credit, and what kind of deal you make with the finance company.

          I get leasing isn’t for you. No problem there. But these “objections” you’re bringing up are silly.

      • 0 avatar
        James Charles

        FreedMike,
        As I told Todd, the metals tax for US made vehicles will need to be paid for as well as the interest on borrowed money across the industry.

    • 0 avatar
      seth1065

      Vulpine,
      I agree with you, I drive to many miles to lease but I guess you could always buy the leased car and drive it, kinda of the devil you know vs a jump in leased car prices.

    • 0 avatar
      jh26036

      This is honestly great news for people that have already locked into their cheap lease. People that want to buy the car afterwards will have very strong leverage to renegotiate the car’s buyout.

      • 0 avatar
        deanst

        This is immaterial news for people who have locked in a cheap lease. If the next person has a lease rate $200 higher or $200 lower, it has no impact on you.

        • 0 avatar
          jack4x

          This is a case where leasing is no different than buying. The manufacturer is just as free to raise the MSRP and reduce the incentives in either case.

          For example, someone buying the same truck I ordered last July is now paying several hundred dollars more on the sticker than I did, and getting the same year, make, model and options, plus fewer incentives. Leasing has nothing to do with it.

  • avatar
    ajla

    I expect this would hurt the premium brands more. Toyota and Nissan can keep the payments down by offering some 84 month financing, but most people looking at an X3 or Q50 aren’t going to go for that.

    • 0 avatar
      civicjohn

      84-month financing? Who in the heck would sign up for a car for 7 years of payments knowing it will depreciate from day 1?

      I’m waiting for the person who cuts my hair to give me some stock tips as my alarm to exit the market.

      I don’t like the game of trying to time the market or anything, but $1 trillion in student loans, and the Feds take in record tax revenue and still run a $1 trillion deficit? There really is no difference in political parties now, it just seems like everyone in DC doesn’t give a crap about the economy. I really do feel sorry for my kids.

      • 0 avatar
        FreedMike

        I actually don’t think long-term financing is necessarily the worst idea, as long as you’re smart about it. The dumb way to do it is to sign up for an 84-month loan because that 84-month payment is the absolute most you can afford every month. Someone in that spot needs to be on a cheaper car.

        But let’s say you sign up for 84 months and pay on the loan like it’s a 60-month note instead. I’d say that’s a smart way of doing it – you accelerate the amortization of the loan, and give yourself some flexibility – if it’s a rough month and you can’t make the 60-month note payment, pay the lower 84-month payment instead.

        Not the worst idea, if you ask me (I’m doing something similar, but certainly not on an 84-month note).

        • 0 avatar
          civicjohn

          @Freed, I hear you, I’ve done a 48-month loan in the past, doubled up on the payments, and came out fine.

          “The dumb way to do it is to sign up for an 84-month loan because that 84-month payment is the absolute most you can afford every month. Someone in that spot needs to be on a cheaper car.”

          That’s my fear. It does seem that my kids certainly are more concerned about having a smartphone with an unlimited data plan as opposed to having a new car. Maybe that’s a good sign, I am starting to sound like my grandfather.

          • 0 avatar
            FreedMike

            Well, people have been signing up for too much car loan for as long as there have been car loans. I’d say the difference now is a greater willingness to lend to high-risk borrowers.

    • 0 avatar
      ACCvsBig10

      Well your starting to see longer leases like 39,42 and 48 months on vehicles plus they’re asking for more money down to make the payments look smaller

  • avatar
    Superdessucke

    It was a pretty easy decision for me. I just bought my ’15 Accord off lease. In another three years I may then buy a ’18 Civic Type R because with the dealer’s quoted 3 year lease price of $881 per month with $7,500 down, that car will be worth near 0 in 2021. So that will be a great time to buy one for not a lot of coin.

    • 0 avatar
      Lorenzo

      If you’re planning to buy the car after the lease, it can be a decent deal. Depending on the model, the end-of-lease purchase might be the best used car deal you can make.

      • 0 avatar
        Superdessucke

        Yeah, the price I got on the Accord was way lower than KBB trade in value. The Type R is going to be an even better deal than that because Honda will be taking those in in 2021 at a zero residual value. The early part of the next decade is going to be a good time for those few who will drive a manual transmission hatchback. So it’s worth waiting for in my opinion.

        • 0 avatar
          ToddAtlasF1

          If Honda really is offering no residual on Civic Type Rs, that doesn’t have anything to do with what they’ll be selling them for as CPO cars, nor what they’ll be getting at wholesale auctions if Honda dealers don’t retail them.

          • 0 avatar
            Superdessucke

            Lease residuals are presumably based on an analysis of what the market will be like when the car is traded in. We’re bombarded with articles on here about how car sales are rapidly declining. By 2021, there indeed might be virtually no demand for that car if what we read here is accurate. That’s what I’m counting on.

            There’s going to be few takers on a lot of lease returns. Not just the Civic Type R but cars like the Golf R, GTI, Focus RS, and Veloster N (Hyundai is offering high lease payments on these too, though not yet to Type R levels). It’ll be a good time to be a car guy in a few years. Probably not so much after that but I want to strike then.

          • 0 avatar
            Superdessucke

            @ToddAtlasF1- they are. The numbers I’m quoting you I’ve taken directly out of an August 20, 2018 email I got from a dealer. I’m not making them up or exaggerating. And i have an 820 credit score and three past leases through Honda Finance with no late or missed payments. If you add up the payments and the down payment you come to around $4,000 over MSRP. That means the residual is zero.

          • 0 avatar
            James Charles

            Superdessucke,
            I think if the vehicle is imported and Trump backs off of his Luddite protectionist position imported cars should survive. A different outcome for locally manufactured cars is likely as we are seeing now.

          • 0 avatar
            ToddAtlasF1

            I went on Honda.com today and was quoted $553.00 a month for a 2019 Civic Type-R in the 23451 zip code with zero down for 36 months and 12,000 miles a year. That points to a residual close to $20,000. Even with 0.0% interest it would mean a residual of $17,000.

        • 0 avatar
          johnny_5.0

          Low volume enthusiast cars aren’t magically worth diddly squat after 3 years regardless of body style or transmission type, especially ones suffering from dealer markup when new. They are just parting a few fools from their money. I put nothing down on a manual SS, pay ~$750/month, and it’s worth $5k more than I owe after 2 years. You mentioned Golf Rs, have you looked at how well they hold their value? The Veloster N lease payments are terrible because the H/K cars depreciate like a rock. A $60k K900 is worth the same as a $40k Golf R of the same vintage and mileage. Off-lease Civic Type Rs aren’t going to be a stunning bargain.

          • 0 avatar
            Superdessucke

            Manual transmission. Small. Hatchback. Not a CUV. Value should not be good due to non-existent demand. If there was demand, they would be building more of them. Last I checked, Ford was cancelling the Focus for this market, and VW is going to make the Golf much larger and upscale to try to stop the bleeding by making it some kind of 3 series competitor LOL!

            I don’t know how Todd entered his numbers on Honda.com but even if that’s what it said, that’s not what dealers are writing to customers. They don’t want to be holding an unsellable car at the end of term.

            Anyway, my strategy is set. I was considering buying a new Accord Sport 2.0 6 speed but I’m going to wait because I’ll be able to get the Type R for much much better deal in 3 years.

          • 0 avatar
            Superdessucke

            @Johnny – You are on an old paradigm. There have been literally hundreds of articles on here telling us the market is shifting and large CUVs are what everyone is buying. And most new performance models coming out are CUVs, please notice.

            So what might have been true when you bought your manual SS will not be true in 2021. Things have been shifting. Now it’s accelerating.

          • 0 avatar
            Vulpine

            There is only one group of people for whom a lease is an advantage and that’s the people who tend to trade cars every 2-3 years, whether they need to or not. As others have said, when your lease is done you have no equity in the vehicle–the bank still owns it and the bank is not willing to take a loss on it; if you want to buy out the balance, you’re still going to need to either pay cash or finance the residual. Only if you turn-in and lease a new vehicle will you be able to avoid it–but you’ll still need to pay the difference in book value vs whatever you paid under the original terms.

            However, it does seem that this is hitting everyone in the wallet–if somehow you manage to dodge that residual payment, then that cost has to be added to the price of the now used car on the lot, which could well be WHY used car prices are rising so drastically. No longer are those CPO cars a discount on original pricing; they’re near, if not exceeding, new car pricing to the point that now the banks are forced to offer leases for those 2-3 year-old models and very probably at higher lease rates than the original one.

            As one banking person put it to me, it’s another form of sub-prime lending with higher interest rates. Their victims are still the ones who can’t afford a conventional loan rate, even with an 8-year term.

          • 0 avatar
            johnny_5.0

            @Vulpine

            “Only if you turn-in and lease a new vehicle will you be able to avoid it–but you’ll still need to pay the difference in book value vs whatever you paid under the original terms.”

            I hope I’m misinterpreting what you really meant, because that’s not how leasing works. The deal is the deal, you can’t owe more money when you turn the lease in because it depreciated more than the manufacturer expected. If your leased Sonata is worth $1k less than Hyundai calculated for the residual, they don’t roll over an extra $1k going into your next lease.

          • 0 avatar
            johnny_5.0

            @Superdessucke

            You missed the entire point of what you replied to. You aren’t talking about buying an off-lease Sentra. You are talking about buying a low volume niche enthusiast Civic Type R. Those niche vehicles aren’t impacted to nearly the same degree (if at all) as some high volume 200k+ unit non-CUV. Their production numbers are small enough that their diminutive buyer base will always be able to support the even tinier used market and keep their values up. You can just look around at used Type Rs right now to see this for yourself plain as day. They are usually listed for new MSRP (actually above!). Now go look at a regular used Civic of the same year/mileage. It’s not listed for above MSRP is it? Say it with me now, “low volume enthusiast car does not equal high volume humdrum commuting appliance!”.

          • 0 avatar
            Vulpine

            @Johnny_: Things may have changed but I was aware that the paperwork did include end-of-lease charges that could add up to several thousand dollars if mileage was exceeded, damage to the vehicle and, I believe (though as I said, may have changed) compensating for differences between estimated residuals vs actual at time of cloture.

            I also noted that (because I’ve been told this before) that could be one reason why used car prices are up, compensating for lost residuals the original leaseholders no longer pay (assuming they did pay them.)

            I’m still opposed to leasing a vehicle, however, as at the end of the lease you own nothing. At the end of an actual auto loan, you own the vehicle.

          • 0 avatar
            ToddAtlasF1

            “I also noted that (because I’ve been told this before) that could be one reason why used car prices are up, compensating for lost residuals the original leaseholders no longer pay (assuming they did pay them.)”

            Used car prices are up because estimated residuals weren’t met? It’s like you know there are these words associated with leases, but you don’t know what they mean.

          • 0 avatar
            johnny_5.0

            @Vulpine

            No, they cannot charge you any money if their depreciation math was off. They can/will/do charge for excessive mileage and damage beyond normal wear and tear, but that is also in the contract. Nobody would lease cars if there was some potential mystery payment based on actual vs. assumed depreciation at the end. Just like they don’t pay you money when you turn it in if the depreciation goes in their favor (e.g. you only drove your 36k mile leasee 22k miles). You sign a contract with your monthly payment, optional final buyout amount, mileage limits, blah blah. That is set in stone. They can’t reevaluate what the car is actually worth short of mileage/damage and stick you with a bill. And they will often waive reasonable overages for mileage or minor damage (e g. coffee stains) to get you into your next lease with them.

          • 0 avatar
            Vulpine

            @Johnny_ : Ok. I accept that.

            Still don’t ever plan to lease, however. I just don’t like the concept as you have nothing to show for all that money spent.

    • 0 avatar
      FreedMike

      Whoever takes in that Type R is going to set a new world record for “pickiest lease return.”

  • avatar
    SPPPP

    Hmm, so you’re saying that these customers might end up being leasing an SUV because of *other people’s* preferences? It’s the “tipping point” scenario! Can anyone “bend the curve downwards”?

  • avatar
    cimarron typeR

    I’m not sure this matters a whole lot , in the short term a dude turns in his 300.00 /mon. ’15 Accord and the 19 Accord lease went up 100.00. Well maybe he leases a Civic which is bigger/nicer than the ’12 Accord he previously leased for the same 300/mon. Or he stays in the Accord because it’s still a cheaper lease than a loaded CRV or base Pilot.He still has 300.00 options

  • avatar
    Jerome10

    Know what? I don’t think this will really turn out as bad as they make it sound.

    Say Toyota decides to charge higher lease prices….you KNOW Nissan (or Mitsubishi or VW) will just relax their standards and gobble up all those buyers. At least until we have another economic blow-up and mass bankruptcies pull these companies down as a result of their own stupidity.

    Or the buyers will be forced to, GASP, buy a used car. You know, because a 2-3 year old car these days is such a POS and only has 5% of its useful life left. THE HORROR!

    Economics and math is awesome….everything balances in the end. Nothing, including higher lease prices, happens in a vacuum.

  • avatar
    backtees

    I’m confused. Above article states demand for sedans continue to decline thus producing pricing pressures yet it was recently this same site had an article on “why used sedan prices are not dropping”

  • avatar
    Land Ark

    I have mentioned way too often that I am leasing a ’16 Regal GS. This article is timely since I just confirmed I have 2 payments left. So here’s what I’m looking at. I have a $19k residual and it has 22,500 miles on a 32,500 mile lease. I took it over from someone else at the half way point and got a spectacular deal. The only question mark is whether the damage insurance company will give me a hard time since I didn’t sign the original lease if I give the car back to the dealer, and will I have to pay the $500 disposition fee.

    I have a couple plans. I would be willing to hand the keys to the dealer if the waive the disposition feed and let me walk away. I am guessing I have about $2000 in equity due to the low miles. I am ok giving most of that away since I got such a good deal when I took it over. Also, because I assume moving a Buick sedan will not be such an easy prospect, with or without the GS moniker.
    I’ve also thought about listing the car for sale and arranging with the buyer to pay exactly what it would cost me to buy it out from the dealer. It would take some understanding on their part but they’d save a ton on it.
    I just can’t decide what I want to do next. I wouldn’t mind not having any payments for a few months. I was looking at some sedans and realized I don’t want to pay $400-500/month for what I really want. Time is starting to run out so I’ll have to make a decision soon.

    • 0 avatar
      ma1234

      Oof.

      1) You don’t have equity on a Buick Regal lease.

      2) The disposition fee is charged by the leasing bank. A dealer can’t “waive” it. A dealer simply accepts the car return and waits for the leasing bank to pick up It up.

    • 0 avatar
      ma1234

      Oof.

      1) You don’t have equity on a Buick Regal lease.

      2) The disposition fee is charged by the leasing bank. A dealer can’t “waive” it. A dealer simply accepts the car return and waits for the leasing bank to pick up It up.

    • 0 avatar
      28-Cars-Later

      Your Regal GS in FWD is worth $18250 with those miles, so if you like the car it wouldn’t be a horrible purchase from the resale standpoint.

      3/7/19 $12,600 77,773 3.6 4GT/A SilverLeaseMidwestCincinnati
      3/5/19 $17,800 38,872 4.1 4GT/A BlackLeaseSoutheastOrlando
      3/5/19 $19,100 15,803 4.5 4GT/A GrayLeaseSoutheastOrlando
      2/19/19 $19,00 018,405 4.7 4GT/A RedRegularSoutheastStatesville
      2/7/19 $18,500 13,981 3.7 4GT/A SilverRegularSoutheastAtlanta
      1/30/19 $15,700 50,500 4.1 4GT/A GrayLeaseSouthwestDallas
      1/30/19 $18,00 021,125 4.3 4GT/A BurgundyLeaseWest CoastSan Diego

  • avatar
    James Charles

    TTAC should at track selected vehicles using manufacturing input to see how US manufactured vehicles increase in cost compared to imported vehicles. Use transaction costs (not recommended retail) and look at profit/loss of manufacturers.

    If I’m correct imported vehicles will see less of a rise compared to US made vehicles due to Trump’s metal tax and other barriers and taxes.

    Even use content and where the content originates.

  • avatar
    ToolGuy

    Based on the comments here, consumer understanding of leasing is rock-solid. Vehicle buyers have ‘cracked the code’ on financing options and are now taking advantage of dealers.

    (I do feel bad for the dealers and their families – like the dealer-plated crossover which almost ran me over early yesterday morning at the gas station as the driver rushed to a non-parking-spot to touch up her makeup…. BWHAHAHAHAHAHA!)

    If the salesperson and the F&I associate beg you for mercy on your next lease transaction, we will know why. Kudos to the Department of Education and the CFPB (or was that BCFP…. confused yet?).

  • avatar
    NiceCar

    My Camry lease is up at the end of August and I don’t want to buy it out. Should be interesting times for buying or leasing.

  • avatar
    28-Cars-Later

    So… in an increasing market of CUVs they’re soaking buyers, in trucks they’re drowning buyers, and now in a declining sedan market the move is soak those buyers too. But wait, despite four years of huge production coming off lease somehow all of those have soaked people too, because supply and demand, what’s that? Did I wake up in Bizzaro world?

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