Millennials account for nearly 30% of lease volume

If you’ve noticed your finance office contains a steady stream of customers in their 20s signing new-model lease contracts, don’t be surprised or alarmed. New analysis from Edmunds.com indicated millennial buyers opt to lease their vehicles at a higher rate than the overall buying population.

And for dealers in certain parts of Michigan, Minnesota and Wisconsin, the trend is even more apparent as the site’s findings suggest that millennials are more willing than older adults to sacrifice what analysts consider to be the long-term financial benefits of ownership to get into bigger or more luxurious vehicles that are typically more affordable through leasing.

According to Edmunds’ analysis of registration data provided by Polk, leasing has accounted for 28.9 percent of all new-vehicle purchases so far this year by millennials, who range in age from 18 to 34. The percentage exceeds the industry-wide lease penetration rate of 26.7 percent, and reflects a 46 percent increase in leasing by millennials over the last five years.

By comparison, the share of leasing among all shoppers has increased 41.7 percent during that period.

“Most millennials understand and accept that they’re on a tight budget and that they need to stick to it,” Edmunds.com director of industry analysis Jessica Caldwell said.

“But it doesn’t mean that their financial constraints limit them only to the most basic vehicles to get from Point A to Point B,” Caldwell continued. “If they see a chance to get into a nicer car while staying within their budget, they’re likely to explore that opportunity. In most cases, leasing opens the door to the bells and whistles that they couldn’t otherwise afford.”

Caldwell also pointed out there is a dramatic difference between what millennial shoppers can afford when they choose to lease compared to when they choose to buy.

According to a survey of millennials conducted in June by Edmunds and Morpace, a global market research firm with a large practice in the automotive sector, a majority of respondents (57 percent) said that they are willing to put no more than $2,999 down on a new-vehicle purchase. The survey also showed a similar majority (54.9 percent) said that they are willing to pay no more than $299 per month.

By inputting those budgets into Edmunds’ “How Much Car Can I Afford?” Calculator, shoppers who choose to finance their purchase are generally limited to vehicles priced at below $20,000.

On the other hand, shoppers who are willing to lease can apply the same upfront and monthly budget toward a vehicle priced as high as $35,000.

Other takeaways from Edmunds’ analysis of Millennial leasing behaviors include:

— Leasing is especially popular among Millennials living in some Midwest cities.

In the most dramatic example, Edmunds found that millennials in Grand Rapids, Mich. are 33 percent more likely to lease their new-vehicle purchase than the city’s general car shopping population.

Other top 50 markets where millennials are more likely to lease are Minneapolis-St. Paul (30.5 percent more likely) and Milwaukee (26.4 percent more likely).

—Millennials tend to gravitate toward leasing certain brands compared to the overall car buying population.

Edmunds found that millennials who acquire a new Ram truck, for example, are 30 percent more likely to lease it than the general population. Other top brands that millennials are more likely to lease include GMC (26.1 percent more likely) and Lexus (23.9 percent more likely).

An estimated 25.5 percent of all new compact cars registered by millennials this year were leased, compared to 26.2 percent of new compact cars registered by the general population.