Why is the market share dropping for new leased vehicles? An explanation is emerging in today’s market with high prices, high demand, low inventory and record-high prices. Show
The answer is twofold: First, automakers have just about zero motivation to offer discounts, including lease discounts. New vehicles are in critically short supply. Some shoppers are turning to build-to-order and waiting four-plus weeks. Others are turning to like-new certified pre-owned cars, which can be leased. Second, to cut down their monthly payments, borrowers have increasingly switched to auto loans of 72 or even 84 months. Borrowers – and dealers, anxious to make sales – have discovered that the monthly payment on a 72- or 84-month loan is often lower than the monthly payment on a 36-month lease. “A lot of dealers ended the month with a 1.7-day supply,” said David Christ, Toyota Division group vice president and general manager. “If it gets any lower, we’re going to have to change the calculation to hourly supply,” he said half-jokingly in a recent phone interview. Days-supply is a commonly used auto industry estimate for how long a given inventory of new vehicles would last, at the current monthly sales rate. Before the pandemic, a 60-day supply was considered to be the industry benchmark, although some manufacturers, including Toyota, commonly operated at lower levels – but never this low. As a result, leasing accounted for just 23.8% of new-vehicle financing in the fourth quarter of 2021, according to Experian Automotive, down from 27.7% a year ago, or 30.4% two years ago. For years, before the pandemic, 30% lease share was considered “normal” for the market as a whole. On premium cars, many brands moved more cars on leases than sales. Leasing Due for a Comeback as Supply IncreasesLeasing should start to make a comeback, as new-vehicle supplies recover, as discounting returns to the market, and as interest rates rise, making it more expensive for automakers to offer low-APR loans. In leasing, the main attraction is that the customer only borrows the difference between the upfront cost, and the residual value, an estimate for what the vehicle will be worth at lease end, typically 36 months. A lease customer can acquire more car for the same money, or the same car for less money, vs. a loan. However, that math works more reliably when automakers offer discount leases, and when loan payments aren’t spread out over seven years. “We would like to lease more if we could,” Toyota’s Christ said. After all, a lease customer is back every three years for another new car, much faster than the average loan customer, and lease customers are usually much more loyal. But in the current market, it doesn’t make sense to offer lease discounts big enough to match the monthly payment on an 84-month loan . Here’s this month’s list of top 10 best lease deals for SUVs and crossovers in March 2022: 1. 2022 Mitsubishi Outlander Plug-in Hybrid
The 2022 Mitsubishi Outlander Plug-in Hybrid is being replaced by an all-new 2023 model in the second half of 2022, so if you’re interested in a Best Lease Deal on the 2022 model, get it while it lasts. Under the skin, the 2023 was jointly developed on a shared platform with the Nissan Rogue. Click here to read our review of the Mitsubishi Outlander PHEV. Pros:
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2. 2022 Kia Niro Plug-In Hybrid
Market Scan lists separately two versions of the Kia Niro among its Best Lease Deals this month. They’re listed together here, to save space. Besides the 2022 Kia Niro Plug-In Hybrid, there’s also the 2022 Kia Niro with what’s now considered a “conventional” gasoline-electric hybrid setup, which can’t be plugged in and recharged from an outlet. It’s $29,225 average suggested retail; $329.22 average best monthly lease payment. Click here to read our review of the Kia Niro Plug-In Hybrid. Pros:
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3. 2022 Jeep Wrangler Unlimited
Market Scan lists separately two versions of the Jeep Wrangler Unlimited among its Best Lease Deals this month. They’re listed together here, to save space. Besides the 2022 model, there’s also the 2021 Jeep Wrangler Unlimited: $44,978.21 average suggested retail; $502.87 average best monthly lease payment. For the uninitiated, “Unlimited” means the four-door Jeep Wrangler. Click here to read our review of the Jeep Wrangler Unlimited. Pros:
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4. 2021 Chevrolet Trax
Market Scan lists separately two versions of the Chevrolet Trax among its Best Lease Deals this month. They’re listed together here, to save space. Besides the 2021 model, there’s also the 2022 Chevy Trax: $23,805 average suggested retail; $258.83 average best monthly lease payment. Market Scan rates the 2021 slightly higher based on monthly payment vs. price, but the 2022 is worth a look (see below). Click here to read our review of the Chevrolet Trax. Pros:
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5. 2022 Hyundai Venue
The Hyundai Venue is Hyundai’s smallest and most affordable SUV-style crossover. For an entry-level vehicle, it has advanced high-tech safety features as standard equipment, like forward collision avoidance, and lane-keeping assist. The 2022 Hyundai Venue was named No. 1 in the Best Value Vehicle category recently by Cars.com. Click here to read our review of the Hyundai Venue. Pros:
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6. 2022 Honda Pilot
The 2022 Honda Pilot is a roomy, solid pick, and priced competitively considering the sticker price, and Honda’s reputation for quality and durability. However, supply-chain issues including the computer-chip shortage have caught up with Honda, too. For the whole lineup, Honda said on March 1 nearly 60% of its vehicles arrive at dealerships already pre-sold. Click here to see our review of the Honda Pilot. Like some other Honda models, availability for the 2022 Honda Pilot is still better than average, but the computer chip shortage has started to catch up. For all model years, January sales of the Honda Pilot fell 18.6% vs. a year ago. For all of 2021, sales for the Honda Pilot overall were up 15.5%, but down 16% in the fourth quarter. Click here to read our review of the Honda Pilot. Pros:
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7. 2022 Mazda CX-9
The Mazda CX-9 is Mazda’s three-row, midsize crossover SUV. For last year’s 2021 model, it got a facelift with upgrades to technology, like a new, standard, 10.25-inch center infotainment display. The Mazda CX-9 is a strong seller for the brand. Its sales rebounded in February — up 21% vs. a year ago — after falling 7% in January. Click here to read our review of the Mazda CX-9. Pros:
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8. 2022 Honda Passport
Honda started rolling out the facelifted 2022 Honda Passport in December. In January, Honda racked up record Passport sales for the month, including all model years. But in February, Passport sales were off 10% vs. a year ago. Honda didn’t single out any specific models, but on March 1 the company said its sales were constrained by supply issues. Click here to read our overview of the Honda Passport. Pros:
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9. 2022 Toyota C-HR
The 2022 Toyota C-HR’s name stands for “Coupe High-Rider.” The 2022 model year reflects some tinkering with the trim and equipment levels. Gone is the entry-level, “LE” model, which had a starting sticker price of $22,770 for the 2021 model year, including $1,175 delivery. The higher trim levels continue: the XLE, the blacked-out Nightshade, and the Limited, in ascending order. Market Scan’s average suggested retail, including taxes, dealer fees and options, suggests few people were buying the entry-level model. Click here to see our review of the Toyota C-HR. Pros:
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10. 2022 Kia Sportage
Kia Sportage sales hit a record in 2021, but sales were down sharply in February, probably due to supply issues. In addition, an all-new, redesigned Sportage is due to be introduced right about now as an early 2023 model year, so it would be understandable if Kia is low on the 2022 version. On the other hand, it’s a good time to get a Best Lease Deal on the 2022 model while they last. Click here to see our review of the Kia Sportage. Pros:
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Methodology:Market Scan Information Systems Inc., Camarillo, Calif., identifies Best Lease Deals based on constantly scanning actual offers in the market, and comparing the best average monthly lease payment it can find, vs. an average suggested retail price for that model. Market Scan’s monthly payment is all-inclusive, including options, taxes and dealer fees. Therefore, it may not be as low as special lease deals advertised on dealer and manufacturer web sites, which typically don’t include taxes or fees, and may be for a stripped-down model that lacks popular options. All of those factors would serve to raise the real-world monthly payment. Market Scan also assumes: a 36-month lease term; a customer cash contribution of 5% of suggested retail; and a prime-rated credit score of 720. Deals may vary by region, and are subject to change without notice. FAQWhat’s so special about a 36-month lease, anyway? If loan customers can get a lower payment off of a longer term, why not longer leases?A big reason is that automakers and their “captive” finance companies don’t want to predict resale values further in the future – 36 months is difficult enough. Leases can generate big losses, potentially billions of dollars, for the captive finance companies and their parent auto manufacturers, if they are worth less than the companies predicted, when the lease started. Today, they have the opposite problem. Off-lease vehicles are worth way more than predicted, 36 months ago. That represents a different cost. If anyone had a working crystal ball three years ago, they could have leased cars profitably for a lot less, based on higher residual values, and gained a lot of market share. What about 39-month leases? You do see 39-month leases pretty often. That could be a case of an automaker trying to time lease terminations to coincide with launching a new model that arrives in 39 months. Or, by staggering lease terms, they may be trying to avoid too many lease returns all at the same time, which depresses resale values. Hypothetically, everything is negotiable in auto finance, so you can always ask about a longer term, to try and secure a lower payment. Would it really make a difference?According to Market Scan, the average monthly payment on a hypothetical 39-month lease on a 2022 Jeep Wrangler Limited would be $492.98, vs. $502.42 for 36 months – so, not much difference. For 42 months, it would be $463.52. That’s $38.90 cheaper per month for the 42-month lease, but $1,380.72 more, over the life of the lease. Who gets the EV tax credit on a lease deal?They do, not you, not directly at least. The tax credit of up to $7,500 on an EV or plug-in hybrid goes to the buyer of the vehicle and that’s the finance company, or lessor. You’re the lessee, renting use of the vehicle for three years. Expect to get some or much of the money back in a lower lease rate. If the car is eligible for the entire $7,500 credit, that’d be equal to as much as $208 a month in lower payments. If you take the buyout option at the end, the tax credit is one-time-only per car, to the original buyer: the lease company. |