Popular leased vehicles ripe for monthly payment jump

Dealerships are likely to see quite a wave of customers coming back to their showrooms this year since leased vehicles they delivered three years ago are set to mature.

Along with handling that influx of traffic, store staff also might have another challenge — explaining to the happy lease customer that putting them into another leased vehicle is going to cost them more money.

According to new analysis from Edmunds, the record 4.3 million Americans who will be turning in leased vehicles this year will be in for “sticker shock” when they return to the dealership.

Analysts shared on Wednesday that consumers who are leasing some of the most popular vehicles and want to lease the same vehicle again will find themselves paying as much as 26 percent more than they did in 2016, and more than $1,600 over the life of the lease on average.

Edmunds explained that record-high vehicle prices, weakening residuals and rising interest rates are mostly to blame for the increases, which analysts say are substantial enough to potentially price many shoppers out of the new-vehicle market.

“Three years ago, leasing was an affordable option for almost anyone considering a new vehicle, but the market has made a pretty dramatic shift since then,” said Jessica Caldwell, executive director of industry analysis for Edmunds.

“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. 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,” Caldwell continued.

Experian’s Q4 2018 State of the Automotive Finance Market report highlighted the Top 10 most popular vehicle leased during the closing quarter of last year. The rundown broken down by market share included:

1. Chevrolet Equinox: 3.8 percent
2. Toyota RAV4: 3.2 percent
3. Honda Civic: 2.9 percent
4. Jeep Grand Cherokee: 2.5 percent
5. Nissan Rogue: 2.4 percent
6. RAM 1500: 2.4 percent
7. Ford F-150: 2.3 percent
8. Honda Accord: 2.3 percent
9. Jeep Cherokee: 1.9 percent
10. Ford Escape: 1.9 percent

Edmunds reviewed the most popular vehicles leased in the U.S. to reveal which ones have the most pronounced hikes in lease costs now compared to 2016, looking at identical models and trim levels. The Toyota Camry SE had the biggest spike, costing $2,834 more on average over the course of a 36-month lease ― a 26-percent increase.

Analysts said these price increases could also be “another nail in the coffin” of the sedan market, as the price gap between SUVs and cars has narrowed considerably since 2016 on some of the most popular vehicles.

For example, in 2016, Edmunds noted it cost $1,746 more on average to lease a Honda CR-V LX AWD than a Honda Accord LX, but now that CR-V is only $37 more over the course of a 36-month lease. In 2016, buyers would have had to pay an average of $2,318 more to lease a RAV4 LE AWD compared to a Camry SE, but now that RAV4 is only $1,313 more on average over a 36-month lease.

Edmunds consumer advice editors said vehicles shoppers who find themselves faced with these higher costs do have options, but they need to keep an open mind.

“If your lease is ending this year and costs seem beyond your budget, it might be time to reconsider your approach to leasing or even consider buying used,” said Matt Jones, senior consumer advice editor at Edmunds. “Many automakers are offering low interest rate deals on their certified pre-owned vehicles, which is one great way to get a relatively new car for a comparatively low price.” 

In addition to looking into certified pre-owned vehicles, Edmunds added that vehicles shoppers coming out of a lease should consider:

● Extending the lease: Most leasing companies will extend a lease for a period between a month and a year, giving shoppers time to consider a longer-term solution.

● Switching brands: Many automakers offer attractive deals to whom they call “conquest” shoppers who are trading in a vehicle from a direct competitor. This kind of deal could be enough to offset the price increase a shopper could be facing by staying with the same make and model.

● Checking for equity: Shoppers who leased an SUV may be pleasantly surprised to find out their vehicle is actually worth more than the residual value set at the start of the lease. Car shoppers can see if their vehicle has equity by looking online for its value and comparing it to the residual buyout amount. These funds can be used toward your next vehicle to reduce the monthly payment.

If dealerships encounter customers who are still unsure of what to do, they could point to this Experian data that showed the difference in average monthly payment for a lease versus a retail installment sales contract with traditional financing. Experian used that Top 10 list to highlight that data set.

1. Chevrolet Equinox: $445 for a loan and $304 for a lease
2. Toyota RAV4: $459 for a loan and $346 for a lease
3. Honda Civic: $420 for a loan and $314 for a lease
4. Jeep Grand Cherokee: $604 for a loan and $463 for a lease
5. Nissan Rogue: $465 for a loan and $346 for a lease
6. RAM 1500: $650 for a loan and $441 for a lease
7. Ford F-150: $652 for a loan and $450 for a lease
8. Honda Accord: $485 for a loan and $376 for a lease
9. Jeep Cherokee: $492 for a loan and $357 for a lease
10. Ford Escape: $434 for a loan and $329 for a lease