Auto leases hit all time high in 2016

Automotive lease volume reached an all-time record level of 4.3 million vehicles last year according to the 2016 Lease Market report from car shopping and information platform Edmunds.

The research shows that over the past five years lease volume grew by 91% and in 2016 accounted for 31% of all new vehicle sales, up from 29% of sales in 2015.

Edmunds says that as the popularity of trucks and SUVs grows — SUV sales surpassed passenger car sales for the first time ever in 2016 — consumers are turning to leasing to help them afford these higher priced vehicles. The average lease payment was $120 less than the average finance payment in 2016. For large SUVs, the average lease payment was $125 less, and for large pickup trucks the difference was $206, thanks in large part to high residual values.

Lease terms have hovered at a fairly constant average of 36 months over the past five years, while the average finance term is continuing to creep upward, averaging 69 months in 2016 (compared to 64 months in 2011).

“Leasing has long been the gateway for car shoppers who are looking to get a nicer vehicle than they could if they financed,” said Jessica Caldwell, Edmunds executive director of industry analysis. “Because SUVs and trucks are holding their values so well right now, it makes them much more accessible for a much wider swath of the market, further fueling their popularity.”

Millennial moves

While millennials still only leased 12% of all vehicles leased in the US in 2016, they opt to lease more proportionally than all other age groups. Nearly one-third of all millennials who purchased a new vehicle in 2016 chose to lease — up from 21% in 2011. Millennials also accounted for the highest share of lessees with a household income under $50,000, which presents a significant opportunity for automakers looking to capture the hearts and wallets of these likely first-time car buyers.

“Leasing hits a sweet spot for millennials — they can enjoy the benefits of owning a new vehicle at a low price point with the latest features they crave,” Caldwell said. “If automakers make a positive first impression with this influential group, they have a great opportunity to build lasting relationships as brand loyalty rates are much higher among shoppers who lease vs. buy.”

Luxury brands still capture the most lessees, but brands that have a heavy truck and SUV lineup are starting to play catch up. Brands like RAM, GMC and Chevrolet, who historically had lease penetration rates hovering between 5% and 12%five years ago, have seen lease rates jump more than 100%.

“While we think overall lease penetration will start to level off to 30% in 2017, the shift from passenger cars to trucks and SUVs shows no signs of slowing down,” Caldwell said. “As long as gas prices remain low and residual values on trucks and SUVs stay high, that segment of the lease market is likely to continue to expand this year.”

Edmunds’ data shows the top three brands with the highest levels of lease penetration in 2016 were Infiniti (63%), BMW (58%) and Lexus (55%). The top three brands with brands with highest levels of lease penetration growth between 2011 and 2016 were Fiat (up by 463% over the five years), Smart (339%) and RAM (275%).