Leasing Yields Opportunities for Smart Growth
After taking a nosedive during the financial crisis, leasing has returned with a vengeance. Toyota, for example, used leasing to help it rebound from a string of product recalls and the 2011 Japanese earthquake, and is currently offering a $199 lease on its Camry to keep the car No. 1 in sales. Other automakers are following suit with offers on their own family sedans like the Ford Fusion and Honda Accord.
Leasing has accounted for at least 22.5% of new-car sales every month this year, according to J.D. Power. Mixed with high used-car prices, low interest rates, and car buyers making purchases that depend on the monthly payments instead of sticker price, leasing is a hot commodity.
Because of strong used-car prices, automakers are able to project higher values when those cars go off-lease, which lets them provide cheaper monthly lease payments. The Honda Civic, for one, is available for a $159 monthly lease.
While this seems to be great news for the auto industry — especially as the SAAR hit 15.8 million units — I wonder if all these leases should be taken with a grain of salt. During past periods of “leasing mania,” as Businessweek called it, some automakers and lenders over-subsidized lease payments or accepted too-low down payments and ended up on the losing end when many of those deals went sour.
I’d think that with the crisis behind us, but not out of the rearview just yet, lessors will be wiser as they approve all these lease deals — especially when they take into consideration the effect the increased penetration may have as they set residual values and as auction volumes rebound.
So tell me, readers, is 22.5% a safe ratio for leases?
