Millennials are developing a taste for expensive -- and even luxury -- automobiles and taking out cheap leases so they can afford them.
Lexus, Jaguar, Cadillac and Acura are among the top 10 brands leased by millennial buyers, along with other pricey cars like Subaru, Mini and Buick, according to Edmunds.com, an auto pricing website. The 18- to 34-year-old group leases 60 percent of their luxury cars compared with about 50 percent for other buyers, Edmunds says.
The leasing data is more evidence that American millennials -- aka Generation Y -- like cars after all, defying predictions that they’d shun driving for public transportation or Uber. They are now the second-largest group of new car buyers, after their boomer parents, and will buy or lease almost 2 million vehicles this year. Millennials typically prefer to spend $300 max per month on a car and put down no more than $3,000, according to Edmunds. Leasing is the only way to get the car they really want and allows the tech-hungry cohort to get a new vehicle every two or three years.
“If they see a chance to get into a nicer car while staying within their budget, they’re likely to explore that opportunity,” said Jessica Caldwell, director of industry analysis at Edmunds. “In most cases, leasing opens the door to the bells and whistles that they couldn’t otherwise afford.”
Of the 10 brands they lease the most, only Toyota’s entry-level Scion brand and Fiat Chrysler’s Ram pickup brand are mainstream, Caldwell said.
To be sure, millennials are still finding it hard to land well-paying jobs. And though they represent 24 percent of the U.S. population, they account for just 8.7 percent of luxury car customers and 11.6 percent of the mass market, according to Edmunds. But analysts say their appetite for cars will pick up as the economy accelerates and more and more Gen Yers move to the suburbs where public transportation is spotty.
Auto leasing is making a comeback and this year has accounted for more than a quarter of new-auto sales, according to Edmunds, the highest rate in years. Leasing is spurring a sales boom and provides an entree for buyers who might otherwise be unable to afford a car. Millennials lease 29 percent of the time, compared with 26.7 percent for other American car buyers, and they are leasing more often.
When Mo Varatharajah was shopping for some new wheels recently, the 25-year-old resident of Sunnyvale, California, saw long-term vehicle ownership as a less-appealing option and more costly compared to leasing a car. With a monthly payment of $380, he was able to get into a Mercedes C300 rather than a more pedestrian car.
“The affordability of a monthly payment makes leasing much better than owning,” said Varatharajah, a business manager at a logistics company. “It’s a great way to build credit up with a brand and move into a nicer car.”
Plus, millennials like Varatharajah are used to upgrading their smartphones every couple of years and expect the same for their cars. It makes no sense to them to buy a car and hang on to it -- even if doing so is cheaper in the long run.
“Leasing lends itself to staying up to date with the latest technology,” said Kevin Tynan, a Bloomberg Intelligence analyst.
Gen Yers see another downside to long-term ownership: the hassle and cost of repairs and maintenance.
“With leasing, you’re not responsible for taking care of and fixing up the car,” Varatharajah said. “That’s even more important when it comes to luxury brands with more expensive costs.”