Car sales remained strong last month, with Chrysler Group and General Motors posting double-digit sales growth over a year earlier. But a growing number of Americans are choosing to lease, rather than buy, new models.
Chrysler’s June U.S. car sales jumped 20% from a year earlier, while General Motors reported a 16% increase, according to data released today by the companies. Ford’s sales rose 7%. At the current pace, about 14 million new cars are expected to sell this year, up from May’s estimate of 13.8 million.
While experts say much of that growth has been driven by stable gas prices and easier access to car loans, leasing is also accounting for a bigger chunk of sales. Nearly 20% of new cars that consumers drove off dealership lots between January and April of this year were leased rather than bought, according to the latest data by Kelley Blue Book. That’s higher than all of 2011, and up from 18.5% in 2010 and 12.7% in 2009.
Historically, leasing has been a bad deal for would-be car buyers, say car experts. In exchange for using the car for three years — the typical lease period — consumers made fixed monthly payments that were often larger than if they purchased the vehicle with a loan.
But recently that trend has been changing. Monthly leasing payments have been dropping as car manufacturers try to encourage consumers who would have otherwise remained on the sidelines to get a new car. Separately, leasing payments are largely based on how well manufacturers believe cars can retain their values. Because cars are holding onto more of their value now than in the past, manufacturers are lowering leasing payments. “Leasing rates have become more competitive,” says Jessica Caldwell, senior analyst for Edmunds.com.
In many cases, the monthly payments on leasing a car are now cheaper than purchasing it with a loan. Honda is leasing the 2012 CR-V for $320 a month without any upfront cash due at signing. Someone who buys the car with a five-year loan at 4.46%, the average rate according to Bankrate.com, will pay $99 more a month without a down payment, or $57 more each month with a 10% down payment. The 2012 Buick LaCross leases for $279 a month with $2,849 down at signing. If a buyer makes the same down payment, their monthly loan payment will be $508 – or $229 more.
Experts say car manufacturers have also been touting leases as an affordable way to finance a car to consumers who might have otherwise not made a purchase. While leasing remains popular with European luxury vehicles, it’s slowly rising in other car segments. Lower-cost Japanese and South Korean vehicles account for 23% and 17% of leases, respectively, up from just 16% and 4% of leases in 2006, according to Edmunds.com. Separately, subcompact cars make up 10% of leases, up from 6% over the same period.