Despite slight dip in new-car prices, leasing costs projected to keep rising

Freedonia Focus Reports and Kelley Blue Book shared more data and projections about vehicle leasing and new-model prices.

Freedonia Focus Reports said that U.S. consumer spending on vehicle leases is forecast to rise 1.3% per year in nominal dollars through 2025. Analysts explained that increased consumer leasing of crossover utility vehicles, sport utility vehicles and trucks — which generally lease at a higher price point — will drive growth over the forecast period.

Furthermore, Freedonia Focus Reports noted that consumers ages 18 to 34 — the population cohort the firm believes is most likely to lease a vehicle — will continue to fuel replacement demand for vehicle leases, especially as they begin to start families, which often requires upsizing a vehicle to accommodate more passengers and cargo.

“Those in the 18-34 cohort will also be attracted to car leases due to the relatively low monthly payments compared to those of car loans, as this generation sustained long-term harm to wealth formation due to the 2007-2009 recession,” Freedonia Focus Reports said in a news release that also highlighted online availability of its report.

“People of this age group also tend to be technologically minded, making leasing more attractive for those seeking new-vehicle features,” analysts continued. “Finally, with manufacturers continually expanding and improving the features installed in these vehicles, some consumers will choose the short-term commitment of leasing so that they can more quickly update to the newest technology.”

Meanwhile, that newest technology in those new models continues to be high, according to new data released by Kelley Blue Book, a Cox Automotive company.

KBB said new-vehicle average transaction prices (ATPs) decreased to $45,927 in March after reaching a record high in December 2021, Prices fell 0.3% ($156) month over month, but remain elevated compared to one year ago, up 12.9% ($5,247) from March of last year.

Analysts noted that new-vehicle inventory days’ supply was in the low 30s in March while customer demand remained high. KBB indicated these conditions enabled dealers to continue selling inventory at or above the manufacturer’s suggested retail price (MSRP).

In March, analysts determined new vehicles from Kia, Honda and Mercedes-Benz were transacting on average between 7.8% and 9.8% over MSRP. On the other side of the spectrum, Volvo, Buick and Lincoln were selling around 1% below MSRP.

“With a myriad of supply chain issues disrupting global vehicle production, we expect inventory to remain tight through the rest of the year and prices to remain high,” Cox Automotive executive analyst Michelle Krebs said in another news release.

KBB discovered the average price paid for a new non-luxury vehicle last month was $42,364, down $53 from February and marking the fifth consecutive monthly decrease for non-luxury. However, while the average MSRP on a non-luxury vehicle has decreased over the past five months, analysts said shoppers still are paying on average more than $970 above sticker price.

Consumers have paid more than MSRP for each of the last 10 months, whereas one year ago, non-luxury vehicles were selling for more than $1,300 under MSRP, according to KBB.

In March, analysts determined the average luxury buyer paid $65,123 for a new vehicle, up $272 month-over-month and still $2,550 above sticker price. For comparison, luxury vehicles were selling for more than $2,400 under MSRP one year ago.

KBB mentioned luxury vehicle share fell to 15.4% of total sales in March, down from 16.3% of total sales in February and down from 18.4% in December, which helped push overall ATPs to a record high of $47,064 at the end of last year. 

Analysts added that new-vehicle average transaction price changes month-over-month by segment saw only cars increasing and all other segments decreasing.

Cars had an average transaction price of $41,570 in March, a $216 increase month-over-month. With an ATP of $47,024, KBB said vans posted the largest decrease of $983 in March, followed by trucks ($54,622 ATP) with a $288 decrease. SUVs decreased by $162 to an ATP of $44,645.

Meanwhile, analysts said vans still had the lowest incentives (expressed as a percent of ATP) at 1.6% and trucks had the highest at 3.7%. Incentives dropped to a record low level in March, averaging only 3.2% of the average transaction price.

Source: KBB