Auto finance executives largely expect leasing to surge over the next two years as incentives resume and supply builds, but predictions vary on how much it will increase.
Leasing across the industry is likely to surpass pre-pandemic levels within the next two years, Mark Chandler, vice president for business development at Credit Union Leasing of America (CULA), told Auto Finance News on Feb. 2 during the National Automobile Dealers Association (NADA) Show in Las Vegas.
Chandler projects that leasing will reach 40% nationally by yearend 2025.
“In some markets, leasing has surpassed where it was pre-pandemic,” he said. “It’s the affordable solution.”
The percentage of prime and superprime borrowers who leased vehicles in the third quarter stood at 27.4%, up from 21.2% a year prior but below Q3 2021’s level of 29.4% of prime consumers who leased, according to the latest data from Experian. Leasing in Q3 made up 56.2% of new-vehicle financing in New York and 59.4% in Michigan, the two leading lease states.
Affordability solution
Leasing can be an alternative to longer-term loans as lenders look to combat affordability concerns, CULA President Ken Sopp told AFN at NADA. Credit unions have been offering terms as long as 84 months to bring down monthly payments, he said.
In a survey of credit union leaders that CULA conducted in January, 86% of respondents indicated they do not expect to extend loan terms further in 2024, Sopp said.
“Credit unions are generally pretty conservative, and you’re seeing them do all these long-term loans to be competitive,” he said. “They’ve seen it’s gone too far and they’re going to see more losses by extending out that far. Leasing is a good solution to lower the payment without going out to seven or eight years.”
Still, projections on where leasing is headed were mixed at NADA.
Experian expects leasing to reach about 28% nationally in 2025 as incentives become more prevalent, Melinda Zabritski, senior director of automotive financial solutions, told AFN at NADA, adding that leasing remains largely regional.
“The lease payment on average is more than $100 less than [other financing],” she said. “We know manufacturers love leasing; it gets the consumer back in 36 months and loyalty rates are higher.”
Credit union lending network CUDL expects leasing to be flat year over year by yearend 2024 at around 20% of new-vehicle sales industrywide, Josh Amaton, vice president of dealer client experience at parent company Origence, told AFN at NADA.
Credit unions “have been able to focus on [vehicles where] the OEM or the captive isn’t offering as attractive lease rates or residuals,” he said.
Early Bird registration is now available for the second annual Auto Finance Summit East, which gathers lenders, dealers and fintech innovators in an event designed to bring the power of technology to a cross-section of industry players. Early Bird pricing ends March 15. Visit AutoFinance.Live to learn more.
