Under the Hood: Financiers reinvent leasing amid slump

Financiers are refreshing their product pipelines as leasing’s popularity has taken a hit. The one-two punch of increased car prices and rising interest rates has knocked down leasing volume, and that trend is showing no signs of abating. Cox Automotive , for one, has lowered its 2022 lease share forecast to 19% — adding that the ratio could drop even further. By comparison, 30% of new vehicles were leased in 2019. In September, 149,734 vehicles were leased nationwide, down 33% year over year, according to AutoCount data. Some captives have seen even bigger leasing drops in recent months. Lease volume at Toyota Financial Services has plunged 50% year over year and 45% at American Honda Finance , according to AutoCount. Historically, consumers have favored leases over loans for their lower monthly payments. But this year’s average lease payment is about equal to 2020’s average new-vehicle loan payment, Cox said. And considering that consumers in today’s market likely leased their previous vehicles three years ago, when prices were notably lower, the jump in monthly payment has them rattled. So, these perennial lessees are instead opting to secure loans for their vehicle purchases — or step away from the car market until it normalizes. Higher lease prices are stemming, in part, from low inventory. Zero-percent financing offers at the beginning of the pandemic lured consumers into the purchase market. And with vehicle production still sputtering, inventory levels have remained tight, suppressing lease incentives. Pay-as-you-go leasing With the leasing landscape evolving, financiers are following suit. Nissan Motor Acceptance (NMAC) has unveiled a pay-as-you-go lease option to appeal to consumers who are using their cars less often and, as such, are looking to avoid being locked into high-mileage plans. With NMAC’s new program, called SignatureFLEX, leases start at 5,000 miles per year. Consumers can buy more miles, if needed, at a rate of $0.10 per mile. SignatureFLEX marks NMAC’s second new lease product in as many years. In 2021, the captive introduced a 10,000-mile-per-year lease that became the most popular option for its new-car contracts. By comparison, 67% of NMAC’s new-car leases in 2020 included 12,000 miles per year. Initially, SignatureFLEX will be available only on Rogue and Pathfinder models, but Nissan expects to expand the plan to more models next year. Similarly, a Hayward, Calif.-based auto finance startup called Zevvy is offering a pay-as-you-go lease designed specifically for electric vehicles (EVs). Zevvy, founded in 2021, scored $5.4 million in seed funding last month. The startup’s pay-by-the-mile product allows drivers to customize lease terms and enables them to try an EV without the high initial cost or long-term commitment of a loan or the mileage caps typically found with traditional leases and subscription services. When the lease term expires, Zevvy customers can either return their EVs, renew them month-to-month, or buy them outright, applying all mileage fees paid toward the purchase price of the car. The fledgling company plans to use its newfound funds to grow its operational and technical capacities over the next year, expanding access to EVs to thousands more drivers across California. EV leasing subsidies Meanwhile, in France, the government is readying a plan to subsidize electric car leasing. The program would make fully electric vehicles available to low-income households for $100 a month, less than what many people spend on gasoline. The government is still hammering out details for unveiling the plan. Already, the French government offers subsidies of as much as $6,000 for the purchase of EVs that cost less than $47,000, with possible additional aid under a cash-for-clunkers program for old combustion-engine vehicles. EVs represented 12% of new-car sales in France through July. Lessors are at a critical juncture in the leasing market. If they fail to create a product lineup that draws customers, the industry will face a challenge as fewer off-lease vehicles trickle down into the certified-preowned sector, spurring vehicle prices to remain abnormally high. Leasing has historically drawn a specific type of customer — one seeking a lower monthly payment, a locked-in future price, a shorter commitment and protection from loss. But these more flexible leasing options could lure new customers into the market, propping up leasing’s popularity. This trend is especially likely as vehicle prices continue to rise, hindering affordability for consumers.

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