Auto leasing set for moderate rise

Auto sales will keep growing in 2015 on favorable economic conditions but manufacturers are likely to boost incentives and turn slightly more to leasing, according to predictions from Kelley Blue Book (KBB), the vehicle valuation and information source.

KBB analysts reckon new-car sales this year will reach 16.9 million, up 2.5% on the 16.5 million sold in 2014. Retail sales will represent by far the largest share again in 2015, rising to 13.9 million from 13.5 million last year, while fleet sales are likely to remain flat at about three million units.

However, overall this is set to be the slowest growth in new-car sales since 2009, when the industry declined 21.2%. In 2010, industry new-car sales were up 11.3% and US sales rose 6.1 million units between 2009 and 2014.

Analysts are also expecting leasing’s share of new-vehicle transactions will grow more slowly this year than in the past few years. KBB estimates that the number of new vehicles leased will rise to 3.51 million in 2015 from 3.36 million in 2014.

As a percentage of retail sales, though, that equates to a gain of 25.3% this year from 24.9% in 2014 and 23.4 percent in 2013, according to KBB data.

Leasing penetration growth is moderating as higher levels of returning off-lease vehicles reduce used-car values, said Eric Ibara, KBB director of residual value.

“Automakers tend to back off leasing either when used-car prices drop or their costs escalate,” he said. “I think there’s opportunity for either or both of those to happen over the coming year.”

On the other hand, KBB analysts reckon leasing “could press up beyond 25% to 26%” industrywide this year, after averaging “closer to 27% to 28%” at the tail end of 2014. December typically sees a spike in leasing activity because of the strength of the luxury segment during this month.

As a percentage of average transaction prices, KBB expects 2015 incentives to be 8.8% compared to the low of 8% recorded in 2012 and 2013. However, this prediction is also below the record incentive of 9.7%, seen in 2005 and 2008.

KBB expects transaction prices to continue to rise to an average $33,500 in 2015, up almost $700 from 2014’s $32,804, and says this upward trend should ensure auto manufacturers will be able to maintain pricing discipline.