CARY, N.C. -

Cars.com is predicting an increase in lease incentive spending for 2014, and it appears that trend already began to play out in the opening month of the year.

Chief analyst Jesse Toprak said the average leasing incentive per vehicle leased in January was up 4.3 percent year-over-year at $3,612.

This follows a 5.1-percent rise for full-year 2013, according to the data Cars.com provided to Auto Remarketing.

“As the residual values stabilize this year and the industry sales become even more competitive in crowded segments such as small cars and luxury, we anticipate that the captive finance arms of the OEMs will have no choice but to be more generous,” Toprak said. “This will likely end up in a higher level of spend for leases this year.”

Citing information from Autodata Corp., NADA Used Car Guide indicates that lease subvention for 2013, while still elevated, was unchanged from 2012 and remained equal to pre-recession levels. The Autodata figures cited by NADA Used Car Guide put the lease subvention average for 2013 at just above $4,000 per unit.

Looking at overall incentive spending from this past month, NADA Used Car Guide said in the latest Guidelines report that January represented the 12th straight month of increased incentives. Citing figures from Autodata, NADA said incentives fell 6.3 percent month-over-month but climbed 8.7 percent year-over-year.

“Dealer, finance and lease subvention were all up, but customer cash, which most negatively impacts used-car value retention, fell by 6.2 percent,” Jonathan Banks, executive automotive analyst of NADA Used Car Guide, said in the report.

“It was the first time since last January that automakers pulled back their utilization of customer cash, but on the other hand, the increase in the other types of incentives was significant as it was the first time all three were up since December 2010,” he added.

Swapalease Analysis on Payments

Last week, Swapalease.com released an analysis indicating that average monthly lease payments had fallen more than 3 percent since August.

Specifically, the site was pointing to an average monthly lease payment of $572.42, versus $590.38 in August. Monthly lease payments “have continued to decline stemming from aggressive lease deals and increased incentives offered on leases since 2012,” the analysis from Swapalease suggests.

“We expect monthly lease payments to continue to drop in the near term as leasing remains an attractive sales tool for dealers and manufacturers,” said Scot Hall, executive vice president for Swapalease. “We’re seeing a lot of drivers use the Swapalease.com marketplace as a way to escape their current contract and immediately take advantage of a more aggressive deal in the showroom.”

Per Swapalease’s data, the steepest year-over-year payment decline in the group of the most popular leases was for the Chevrolet Cruze, whose average payment at the end of January was down 20.1 percent from the year-ago period.

Next on the list was the Toyota Camry (down 18.1 percent), followed by the Audi A4 (down 17.6 percent) and the Chevrolet Volt (down 11.8 percent).

Besides the Volt, Swapalease also noticed declines in payments among other fuel-efficient cars like the Toyota Prius (down 5.2 percent).

Despite the overall decline and the large drops at the top of the list, Swapalease listed many popular models that showed increases in lease payments.

Among those was the Nissan Altima, whose payments increased the most among popular models (up 14.3 percent).

The Honda Civic (up 12.3 percent) and the Ford Focus (up 11.3 percent) also showed double-digit-percentage gains.

Lease Deals in February

In a separate analysis released Tuesday, Cars.com explained how low interest rates and strong residuals have led to a number of leasing deals this month.

“We’re in a perfect storm of favorable leasing conditions. Residual values continue to maintain at near-record levels and interest rates are at historic lows, both of which make lease payments more affordable for consumers,” Toprak said.

His comments also included what could be turned into a potential selling point for dealers trying to get a customer into a lease: “If you’ve never leased before, this is the time to consider it, as leasing offers the luxury of a brand new car, with a full warranty, without the commitment of ownership.”

Cautionary Tale

An update from ALG on incentive spending (leasing and otherwise) and inventory levels released Tuesday may have some in the industry tapping the brakes a bit, however.

Given the fact that inventory levels are at nearly a four-and-a-half-year high, ALG is forecasting a short-term incentive spike, which could be cause for alarm if prolonged.

The firm’s mid- to long-term residual forecast (up to 36 months) still points to a 15- to 20-percent lift.

But ALG said it is having to “re-think” its outlook for the short term due to rapidly increased inventory levels and production levels having not been adjusted.

“Rising inventory levels combined with several more waves of bad weather will result in a short-term spike in incentives,” said Eric Lyman, vice president of editorial and consulting for ALG. “The danger is that this could be the beginning of an escalating arms race for market share.”

As far as specifics on the inventory levels, ALG pinpointed December at 61 days-to-turn and January at 59 days-to turn.

The last time inventory was this high was the 68-day turn-rate in August 2009, just off the crest of “post-economic meltdown levels,” as ALG put it.

If this spike in incentive spending sticks around, ALG says residual values would move downward.

“The availability of low-cost lease deals, especially for mainstream vehicles has been driven by strong residual values,” said Lyman. “Those residual values have been predicated on disciplined pricing and incentive levels.

“We will continue to monitor incentive and inventory to understand whether this current spike is purely a short-term solution to release the pressure of bloated dealer lots or if there are long-term implications,” he added.

Leasing Approvals

NADA Used Car Guide indicates that “excellent credit” is required for leases, and more often than not, consumers have to shell out a down payment that has some merit. As such, it suggests the current landscape of leasing won’t bring in as many used-car buyers into the new-car market and will only impact used prices moderately.

In fact, the average credit score for lessees (and loan customers, for that matter) on nine of the top 10 leased models was above 700, according to Experian Automotive data for the October/November time frame.

Swapalease said Tuesday that the lease credit approval rate for customers on its own site in January was 70.5 percent, versus 73.3 percent in December. Swapalease believes 70 percent is an optimal level for the lease transfer marketplace – in other words, seven of 10 car shoppers are green-lighted to take over a lease via transfer. The credit approvals rate on Swapalease.com has been 71.6 percent over the past six months and 71.8 percent over the last 12.  

However, there has some turbulence in recent months, with the rate falling to 62.9 percent in September but climbing to the aforementioned 73.3 percent height in December.

Swapalease pointed to a Reuters report indicating that consumer credit for December was at $3.1 trillion, a $18.8 billion increase, per Federal Reserve figures. The site also mentioned a Reuters poll of economists that points to expectations for $12 billion increase in consumer credit. There was a $13.8 billion increase in non-revolving credit, which auto loans, during December, Swapalease added.

“Our lease credit approval trends affirm what the Federal Reserve is reporting on broader credit trends,” said Hall. “As more consumers expand their use of credit, combined with a larger number of customers applying for transfer, we’re seeing a larger number of both approvals and non-approvals reported by our finance partners.”