Lease Vehicles at Record High in First Half of 2016

More new vehicles were leased in the first half of 2016 than during the first half of any other year in U.S. history. Moreover, lease volume has doubled in the last five years, suggesting that the automotive market could be on the verge of a fundamental shift in consumer mindset about the value of owning a new vehicle — particularly when the purchase has to be financed.

“Millennials and seniors actually have more in common that one might think, since both experienced deep economic recessions during their formative years that helped to shape their worldviews and made them more value-oriented,” said Jessica Caldwell, Edmunds’ executive director of industry analysis.

The Millennial generation has the highest rate of lease penetration at 34.2%, but the strongest growth has come from shoppers over the age of 75. During the first six months of this year, more than 32% of cars sold to this age group were leased –a growth rate of 74% compared to five years ago when lease penetration this group was only 19%.

On average, monthly lease payments are 23% lower than monthly financing payments. The biggest difference between monthly lease and financing payments can be found with compact cars (30%), full-size pickup trucks (29%) and midsize cars (28%). While the majority of vehicles leased continue to be in the luxury segment, the most significant growth is in large vehicles, with compact trucks (214%), large trucks (142%) and large crossover SUVs (96%) leading the way.

Automakers are caught on the horns of a dilemma here. How to meet the demand for attractive lease deals while protecting residual values against a flood of used cars hitting the market simultaneously. As a result, automakers have dropped the allotted mileage of leased vehicles so they are returned in better condition and allow for more certified pre-owned vehicles on dealer lots. The average allotted miles has declined from 13,060 in 2005 to 11,999 today. Automakers have also pushed leases on vehicles with the most desirable options, trying to make used cars more attractive.

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