Car Sales' New Lease on Life
Car sales are on the rise partly because, ironically, fewer people are buying cars — they're leasing them instead.
U.S. car sales hit an annualized rate of more than 18 million vehicles in September, the highest in more than a decade. Low gas prices and interest rates, a stronger economy, and demand for a generation of more fuel-efficient trucks are all helping sales. Leases are playing a big role, too, notes Bloomberg Intelligence analyst Kevin Tynan.
Leases accounted for 28 percent of new-car sales in September, up from 20 percent in 2012, according to car-sales tracker Edmunds.com. GM, Ford and Fiat all have reported strong sales in the latest quarter. As the chart above shows, they and Toyota have all ramped up their leasing in recent years.
Instead of offering cash incentives to car buyers, carmakers have increasingly been giving that money to financiers, who use it to lower monthly payments for lessees and raise the residual values of cars.
Carmakers like leasing because it builds brand loyalty more than purchases do, as the chart below shows, giving them a better idea of future demand.
Customers like leasing because they can get more car for their money and avoid the huge commitment of buying a car forever. Upgrading cars more frequently, as serial lessees often do, also makes it easier to get the latest in auto technology, as cars get more high-tech with each release.
The leasing trend seems set to continue: Millennials recently overtook Generation X as the biggest generation in the U.S. workforce. And over the past five years millennials have increased their leasing by 46 percent, according to Edmunds.
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