Leasing & Long-Term Loans Likely Reaching All-Time Highs

WESTLAKE VILLAGE, Calif. -

Lease penetration for February is speeding away at an all-time clip, according to J.D. Power and Associates, which said at this pace, the month’s leasing rate would beat a record set nearly a decade-and-a-half ago.

Interestingly enough, J.D. Power’s analysis of its Power Information Network data also indicated that long-term loans are on track for a record-high share of new-vehicle retail transactions in a single month.

As for specifics, J.D. Power said Wednesday that leases have accounted for 26.5 percent of new-vehicle retail sales in February. The current lease penetration record of 26.0 percent was reached in May 2000.

Meanwhile, 33.1 percent of new-vehicle retail sales this month have had loans attached that are 72 months or longer, according to the analysis. The record share is 30.6 percent, which was set in September 2012.

“Longer loan terms, coupled with the current low interest rate environment, increases the affordability of new vehicles for consumers,” said Thomas King, senior director of PIN at J.D. Power. “This is resulting in strong demand for new vehicles and also record transaction prices.”

Transaction prices this month are averaging more than $29,000, which would be a February record and beat the prior high (set last year) by almost $400, the analysis indicated.

Granted, there has been some trepidation regarding the risks often brought on by extended purchase cycles. King pointed to two trends that may help offset those issues:

— Even with more 72-month loans in the market, the average loan term is 66 months, which is only three months higher than the average term length in 2009.

— There are more leases, and these contracts typically are only 36 months. This helps generate future buyers with shorter purchase cycles.

“Unlike buyers who finance their vehicle and have considerable discretion regarding when to return to market, consumers who lease their vehicle must come back into the market when their lease terminates,” said King. “The current level of leasing means there will be a steady and significant stream of lessees returning to market three years from now.”

Additionally, J.D. Power also shared data regarding 84-month and 96-month loans and found these types of contracts “have yet to compose any meaningful portion of the auto financing market.”

For February, just three percent of all sales included loans with 84-month or longer terms.

Lease Transfers on Rise, Too

After J.D. Power issued its analysis, Swapalease.com came out with a response to the data, suggesting that “consumers are looking to switch lease vehicles at a quicker pace, further fueling the growth in leasing today.”

In December, vehicles listed within the online lease transfer marketplace had an average of 22.1 months remaining on the contract. This marked a record for the site (which was launched 14 years ago). Previously, the record average was 21.8 months, reached in August 2006.

Swapalease said the average has since dipped to 22 months.

Even so, with most leases being 36 months, this means the average person looking to use Swapalease to exit a lease has been in the car less than 15 months.

“Pent-up demand has been a major factor in the growth in the automotive industry in recent years. Many of these car shoppers are enamored with the attractive lease deals, and their increased desire to change vehicles more frequently has been a big driver of the Swapalease.com marketplace since the recession,” said Scot Hall, executive vice president at Swapalease.

Joe Overby can be reached at joverby@autoremarketing.com. Continue the conversation with Auto Remarketing on both LinkedIn and Twitter.