Strategies to Raise Leasing PenetrationStrategies to Raise Leasing Penetration
A projected drop in lease maturities could curb showroom traffic and lower revenue.
Leasing long has been a great way for consumers to lower their monthly payments, experience the latest technology and get a new vehicle every three years. In 2022, however, new-model inventory was slim, as were incentives to lease.
Given the average lease is three years, the return rate of leased vehicles is set to plunge this year. For dealers, that has ominous implications, analysts say.
Lease maturities in the first half of this year are projected to decrease by 41% compared to first-half 2024, S&P Global Mobility says, which would mean the return of nearly 1 million fewer lightly used pre-owned vehicles to dealerships.
The drought will spread across all segments, Julie Knakal, executive director, data and content management at S&P Global Mobility, tells WardsAuto.
“Luxury does have a steeper drop (in leasing returns), though not as big as you would expect,” she says. “But mainstream volume is so much higher; in general, everyone is getting hit by this.”
The drop in lease returns by premium brands, which tend to lease at a higher rate than volume brands, is forecast at 46% for first-half 2025. Mainstream brand lease returns are predicted to drop 39%.
By fuel type, lease returns of gasoline and flex fuel (such as gasoline and/or ethanol) vehicles are projected to drop 42% and EVs 5%, while PHEV lease returns are expected to rise 6%.
Retailers can’t change what happened three years ago, but there are strategies to encourage a return to leasing so they don’t continue to face the same lease-return shortage in the future, according to S&P Global Mobility.
However, dealers “will have to work harder to find their used supply,” Knakal warns.
More Expensive Customers
Dealers value off-lease vehicles for several reasons. They are, of course, an excellent source of lightly used pre-owned vehicles.
Plus, lease returns are more easily classified as Certified Pre-Owned, which produces a higher profit for dealerships than non-certified used.
Already, dealers are seeing fewer CPO sales, according to Cox Automotive, which says December CPO volume fell 4.9% year over year, “likely due to the lack of supply of off-lease and trade-in units.”
Cox forecasts CPO sales to drop 1.6% in 2025 to 2.5 million units due to fewer lease maturities.
Another effect of fewer signed leases three years ago is that dealerships now will have to find ways to get customers in the door, Knakal says.
“It is much easier to manage the customer relationship (with a lease),” she says. “Stimulating demand for customers that should have been in leases is going to be expensive, both in communications and also possibly helping them get out of their financed deal in a position (in which) they aren’t completely underwater.”
Manufacturer Help Needed
Leasing rates were at 30% in 2019. During the next three years, they declined to a low of 18.4% in 2022 before resuming a slow rise, according to S&P Global Mobility. In 2024, about 25% of new-car purchases involved a lease.
The onus to boost lease rates, and thus lease returns, lies partly on the manufacturers. Their captive financing arms will need to increase leasing spiffs (short-term incentives funds) to both persuade returning lessees to lease again and draw new customers to leasing. Failure to do so may result in lower leasing rates long term, Knakal says.
“If (customers) get used to owning, that is when we will see the lease numbers stay down,” she says. “The extent to which the (manufacturers) chase these former lessees with enticements to switch back to leasing will provide the lift back to leasing.”
Dealerships can help sway shoppers toward leases by working with the captive finance companies to understand which customers are in a positive equity position with the car they bought – that is, the car is worth more than they still owe, giving it value as a trade-in. Dealerships can target those customers with leasing offers, Knakal says.
Educating those customers about the additional benefits of leasing, including lower monthly payments and owning a new vehicle, is also key.
Dealerships can use Customer Relationship Management data or manufacturer data to identify consumers who prefer to lease because they want to stay under warranty and target them with tailored lease offers. That can include programs to make costs more manageable, such as deferred payments or trade-in programs.
Dealerships also can identify new-car owners who are almost out of warranty and remind them of the warranty benefits of leasing, Knakal says.
The Good Old Days Unlikely to Return
The leasing market should begin to stabilize by the first half of 2026, says S&P Global Mobility. If dealers and manufacturers can persuade customers who left leasing to return, the first half of 2027 and the first half of 2028 have “potential for additional upside,” it says.
But the halcyon leasing days of 2019 are likely gone forever, Knakal says.
“I don’t think (leasing rates) will go back to the 2019 levels,” she says. “It could climb back up if they start getting the purchase customers back in the lease market. But the amount of lift that we would need to get back to (2019) levels is exorbitant.”
About the Author
You May Also Like