Record-High Leasing Renders Residual Risk on Lessors | Auto Finance News | Auto Finance News

Record-High Leasing Renders Residual Risk on Lessors

canstockphoto36761179PLANO, Texas — Leasing reached its highest level on record, according to Experian Automotive data released yesterday. However, high levels of leasing puts a lot of residual risk on lessors, Cox Automotive’s Chief Economist Tom Webb told attendees at the Non-Prime Auto Financing Conference yesterday.

The inherent problem in leasing is that, typically, “new lease originations are going to occur at the top of the economic cycle, which means your peak off-lease lines are going to come back in a less-favorable retail environment, possibly even in a recession,” he added.

Leasing accounted for 31% of all new vehicle transactions during the first quarter, and while leasing is still the predominant option for new vehicle financing, used vehicle leasing increased 2% from a year ago, according to Experian’s most recent State of the Automotive Finance Market report.

New vehicle retail consumer lease originations have seen a steady upward trend, Webb told attendees, with a rise to 4 million contracts last year, from a trough of 1.1 million in 2009.

“The continued rise in new vehicle costs have kept many consumers exploring options to keep their monthly payments affordable,” Melinda Zabritski, Experian’s senior director of auto finance, said in a company press release. “As long as vehicle prices continue to rise, we can expect leasing rates to grow along with them.”

The percentage of new vehicles financed was 86%, up 1.6% from a year ago, and the average new vehicle loan amount reached an all-time high of $30 thousand, according to Experian.

Average loan terms for new and used vehicles from franchise and independent dealers all increased by one month, reaching 68, 66, and 58 months, respectively. Average monthly payments for new vehicle loans reached $503, another all-time high, Experian said in the report. Average monthly payments for used vehicles were $376 at a franchise dealer and $351 at an independent dealer.

“The record highs we have seen in vehicle prices also have had a significant impact on the loan market,” Zabritski said in the release. “For example, the number of prime borrowers who switched to leasing has driven an increase in the percentage of subprime borrowers shown in the new vehicle segment. As a result, we will continue to see consumers view used vehicles, longer-term loans, and leasing as a way to keep payments affordable.”

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