Leasing hits high in Q1 with gains across the credit spectrum

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Leasing accounted for an all-time high of 36.1 percent of new-vehicle financing in the first quarter, compared with 31.4 percent a year earlier, Experian says. Photo credit: DAVID PHILLIPS

Automotive leasing levels hit an all-time high in the first quarter, with consumers of all credit tiers more inclined to lease, Experian said last week in its State of the Automotive Finance Market report.

Leasing, which historically has been a product mostly for prime consumers, has increased among nonprime and subprime borrowers too. In the first quarter, leasing made up the new-vehicle contracts of 34.2 percent of nonprime borrowers, (up from 30.1 percent a year earlier); 27.2 percent of subprime borrowers, (up from 22.5 a year earlier); and 36.3 percent of prime borrowers, (up from 31.5 percent).

Subprime consumers who lease typically are on the high end of the subprime spectrum, Melinda Zabritski, Experian’s senior director of automotive finance, told Automotive News.

Leasing accounted for an all-time high of 36.1 percent of new-vehicle financing in the quarter, compared with 31.4 percent a year earlier, Zabritski said.

Automakers’ marketing initiatives, low monthly payments and growing loan amounts have driven the rise, she said.

Used-vehicle leasing, which was rarely considered an option when lenders such as Ally Financial, BMW Financial Services and Toyota Financial Services began offering used and certified pre-owned leasing options earlier this year, also increased. It rose 2.1 percent from the year-earlier period to make up 4 percent of the lease market, Experian said.

Because the share of new-vehicle leasing has risen, the percentage of used-vehicle leases doesn’t even paint a full picture of its growth, Zabritski said. By volume, used-vehicle leasing increased 20 percent year over year.

“There is a lot of discussion in the lending market about used leasing,” Zabritski said. Lenders and dealers are “looking at used leasing in upcoming quarters and months with consumers coming off lease.”

Manheim estimates that, industrywide, about 3.1 million off-lease vehicles will return to the market in 2016, up nearly 20 percent from 2015.

“The continued rise in new-vehicle costs have kept many consumers exploring options to keep their monthly payments affordable,” Zabritski said in a statement. “As long as vehicle prices continue to rise, we can expect leasing rates to grow along with them.”

Record amounts, payments

Average loan amounts and monthly payments also reached highs in the quarter.

The average new-vehicle loan amount climbed to $30,032, an all-time high and a 4.6 percent rise over the year-earlier level. The average used-vehicle loan amount for franchised dealers was $20,723, a 4.2 percent increase. For used-vehicle loans through independent dealers, the average loan amount was $16,124, up 3.3 percent from the previous year.

With the loan amount increases, the average monthly payments on new-vehicle loans also hit a record in the first quarter, reaching $503, up $15 from the 2015 period. For used vehicles, the average monthly payment was $376 at a franchised dealership and $351 at an independent dealership.

Experian also found that more consumers in the prime credit segment have shifted to the used-vehicle market. Prime borrowers purchased used vehicles 54 percent of the time during the quarter, up from 52 percent a year earlier.

“You’ve got a market where there increasingly is a lot of inventory in the used vehicle space,” Zabritski said. “There is a large inventory of great, late-model used vehicles.”

Subprime leans toward new

On the other end of the spectrum, the subprime share for new-vehicle loans rose while the prime share fell, in part because prime borrowers moved to leases and used vehicles, Experian’s data show.

“There is the ability for more subprime borrowers [to move] into new vehicle space, while prime is moving to leasing and the used car market,” Zabritski said.

The number of subprime borrowers financing new vehicles increased 5.5 percent from a year earlier to 11 percent. Overall, though, the percentage of subprime borrowers in the market fell 1.1 percent.

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Leasing hits high in Q1 with gains across the credit spectrum