Lease buyouts pose new-vehicle sales growth opportunity

Lease buyouts pose an opportunity for new-vehicle sales down the road as many consumers have not yet returned to purchase their next vehicle. Of customers who bought out their lease s in 2021 — largely due to inflated vehicle values coming out of pandemic-related supply challenges — an estimated 31% have returned to the new-vehicle market, hinting at pent-up demand for vehicles to come, Kristen Lanzavecchia , director of industry solutions at J.D. Power , said on Oct. 31 at Auto Finance Summit 2023. “There's a lot of opportunity for those customers to come back at some point,” she said. “But what they were paying before is not comparable to the option for a new vehicle right now. We're going to have to see growth on incentives and shrinking margins to get those customers back.” Retail sales were diminished in the past three years from where they should have been if aligned with demand due to elevated prices and limited supply, Lanzavecchia said. In fact, average vehicle prices are still trending about $6,200 higher than they would be if prices trended along with core CPI, down from $8,500 above inflationary trends a year ago, she said. Average incentives are projected to land at about 3.9% of MSRP this year compared with a low of 2.3% in 2022 but down from about 10.4% in 2019 prior to the pandemic, Lanzavecchia said. "We have started to see a bit of stabilization in new-vehicle transaction prices as dealers are reducing some of their margin and OEMs are incentivizing,” she said. “Affordability is better than it was last year, but still a concern.” Rental sales up Increased rental demand should also continue to bolster new-vehicle sales. Fleet sales have been tracking above their 10% average, and rose to 13.8% in September , boosted by a 52.8% year-over-year increase in sales to rental companies, according to Cox Automotive . By comparison, fleet sales accounted for 15.6% of new-vehicle sales in August. In fact, Avis and Hertz recorded YoY growth in their rental fleets for their Americas segments in the third quarter, according to the companies’ earnings releases. Avis’ number of rentable vehicles increased 8.8% YoY to 551,739 vehicles while Hertz’s rentable fleet grew 11.3% YoY to 442,353 vehicles. Avis saw a peak in consumer rental demand in the Americas segment in July in line with seasonality trends, Chief Executive Joe Ferraro said during the company’s Nov. 2 Q3 earnings call. Avis’ rental days, a measurement of the total number of days a car was rented in a 24-hour period, climbed 6.7% YoY to 35,670 in Q3, according to the release. “We saw record rental days, record transactions and record revenue in the quarter, highlighting robust travel demand,” Ferraro said. “Demand has not stopped through October, which looks to be the busiest October on record.” Avis continues to rely on its OEM partners to source new vehicles for its rental fleet, Ferraro said. “With regards to vehicle availability and previous labor disruptions, deliveries are still on track or still available and we're progressing with our talks about future buys. Our model year of 2024 buys are largely complete.” Demand for Hertz rentals across the leisure, corporate, and rideshare businesses rose YoY in Q3, Chief Executive Stephen Scherr said on the company’s Oct. 26 earnings call. Transaction days at Hertz increased 15.6% YoY to 34,278 in Q3, according to its earnings release. Hertz is moving electric vehicles into its rideshare fleet “over the next several quarters” to supplement growth in demand for EV rentals, Scherr said. “As we pull these cars from leisure, we are simultaneously tightening the EV supply in that channel and more accurately matching the fleet to demand,” he said.

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