Why is leasing getting so popular? Is leasing right for you? What are the pitfalls to avoid? We will explore some of these questions in this three part series on leasing. Read on!
Low payments and big incentives to lease
Lease payments have been steadily falling for the last year. In 2015 Ford Escapes were leasing for around $350 per month, now they are down in the $250 range. Ford 150s were in the $600 range and now they are going for $400. On a 36 month lease that is a $7200 drop in the total expense of the lease. But the questions is why now? The combination of historically high new vehicles sales and the pressures of trading on Wall Street are primary drivers behind current lease incentives.
Historical auto industry sales
Even if you don’t follow automotive industry news, you have likely heard that North American auto sales are at an all time high. Here is a chart of new retails sales in the US over the last 10 years.
Since the financial crisis in 2008 the auto industry has enjoyed large year-over-year gains until now. With sales plateauing , the auto manufacturers are faced with difficult decisions of either cutting production growth or figuring out ways to put more cars down the road.
Auto makers are publicly traded companies
The fact that auto makers are beholden to Wall Street is an extremely important fact. The auto makers face huge pressure to show growth in sales as investors need their stock value to grow in order to cash out of those investments. As a result, the auto makers sit around in conference rooms asking, “how are we going to sell more vehicles this year.” One answer is to continue globalization and expansion into emerging markets, but the other is to get their profitable markets, like North American, buying more often.
Leasing is the best way to get consumers purchasing vehicles more frequently. If you buy a new car you may start think about trading it in two or three years, but if it is running well you will likely hold off making any change until there is some major repair or until you see some offer that is “too good to pass up.” If you lease, you get a new car every two or three years. So when it comes to volume sales growth, leasing is in the auto makers best interest.
The good news for consumers is that in many cases leasing is in our best interest as well. Stay tuned for part 2 on why leasing may be right for you.
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