While the cost of new cars stalls buying for many consumers, leasing is one way dealers can get consumers back into their showrooms, the latest TransUnion Auto Credit Industry Insights Report suggests.
“The $25,000 new vehicle just doesn’t exist anymore for the consumer,” Satyan Merchant, senior vice president of automotive and mortgage at TransUnion, tells WardsAuto. “For dealers, this is where leasing comes into play. Leasing is a product that allows a consumer to get back into the market at a lower monthly payment.”
To be sure, not all consumers are priced out of the market. The number of super prime loans made grew by 12.7% from the third quarter of 2022 to the third quarter of 2023 though it was still down 9.6% compared to 2019, says the report, produced by TransUnion in partnership with S&P Global Mobility.
But total loan origination in the third quarter of 2023 was down 4% compared to the same time a year earlier and down 16.1% compared to 2019. All tiers except super prime were down.
For example, the report says subprime is down 10.8% year-on-year and down 27.2% compared to 2019.
Vintage new and used auto loans, meanwhile, see delinquency levels rise. Vintage analysis compares the month or quarter in which a loan was granted against its performance over time.
Lenders were conservative in early 2020 based on loan delinquency levels, Merchant says, but by the first quarter of 2022, delinquency levels were “the steepest in recent memory.”
“The used-vehicle prices continue to be elevated, and interest rates continue to be a challenge,” he says. “That really puts the affordability pinch on consumers.”
The average amount financed in the fourth quarter of 2023 declined year-on-year for both new and used vehicles, but average monthly payments rose 1.8% to $742 for new and 3.3% to $534 for used vehicles.
Consumers often are more concerned with a lower monthly payment than the out-the-door price of a new vehicle, Merchant says. And while manufacturer incentives are rising, leasing can still offer a lower monthly payment.
Some dealers are leaning into leasing, he says.
“We hear anecdotally that dealers that hadn’t done leasing are now finding consumers are leasing vehicles like pickup trucks,” Merchant says.
The Rick Case Auto Group has 13 rooftops encompassing 18 franchises in Georgia and Florida. Its brands are import, luxury and super luxury so it isn’t seeing a lot of leasing in models that aren’t generally leased, such as pickups, Tim Hlavenka, the group’s national sales director, tells WardsAuto.
But lower monthly lease payments are getting more consumers into new cars, he says.
“We do see a lot of people looking to buy a car and if they are presented a lease payment, they are jumping on to that, even if they are going to buy it out at the end,” Hlavenka says. ‘Leasing is getting those people who want a little more flexibility.”
Leasing rates in general are starting to rise, accounting for 22% of registrations in fourth-quarter 2023, up from 17% in the same quarter of 2022 though still down from 30% in 2019.
Though the decline in leasing rates is likely over, “there is a long way to go to get back to normal lease levels,” Merchant says.
