Are Cheap Leasing Options driving the US Automotive Industry?

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The American Automotive Industry and in particular; the Toyota Motor Corporation in Detroit, USA is using a cheap lease option on it’s Camry ($199 a month), just to keep it as the top selling Car in the United States. Toyota used a very similar tactic to recover from a record number of product recalls after Japan’s tsunami in 2011. Now it seems, this tactic is being utilised by the rest of the Automotive Industry on the other side of ‘the pond’.

This was once the main weapon used in an arsenal for selling luxury vehicles; now, leasing is fast becoming widely used when it comes to selling the more popular family saloons (or sedans), such as Ford’s Fusion and Honda’s Accord. Supported by high used car prices, low interest rates on offer and the Americans’ tendency to purchase vehicles on monthly payments – car/auto-leasing is at it’s highest levels in a decade and helping pace the industry’s most successful year since 2007.

“It’s a great way to present a product at very affordable monthly prices,” Peter DeLongchamps, a vice president for Group 1 Automotive Inc., the fourth-largest U.S. auto dealership group and one of the nation’s biggest Toyota retailers, said by telephone. “There’s absolutely no question” Toyota is using leasing to contend in an increasingly competitive mid-size car segment.

According to J.D Power and Associates, leading Global Market Research company; “Leasing’s share of new vehicle sales in the U.S has been at least 22.5% in every month, this year, with the top for months for lease penetration in the last decade coming in 2013”.

Rising sales Leasing is driving U.S car and LCV sales up to a six-year high, with over 1.3 million deliveries to July. If this pace keeps up, the automotive industry will be on track for it’s best year since 2007 where over 16 million vehicles were sold.

Defending position Toyota’s ability to offer it’s customers the Camry at cheaper monthly rates is more than crucial as it attempts to curb the declining demand for the care in the year’s first half. Competitors, including Ford, Honda and Nissan Motor Co., are closing in on Camry, which has been the top-selling car in the United States for the past 11 years. This is mainly down to manufacturers lowering their prices and in turn being able to offer better leasing opportunities to customers.

“As long as things are going in that direction, it can’t ever get too high,” David Westcott, a dealer selling GM’s Buick and GMC brand vehicles in Burlington, N.C., said of the leasing rate. Westcott is chairman of the National Automobile Dealers Association.

Ford is more cautious in its views on the trend of increased leasing activity. The company’s leasing business has been increasing as a share of its U.S. sales, although its mix is still below the industry average, CFO Bob Shanks said in a phone interview.

Loving leases
“Leasing will stay strong as long as used-car prices remain at historically high levels and interest rates continue to be low”, said Peter DeLongchamps of Group 1 Automotive. The Houston-based dealer group reported revenue of $2.34 billion for the three months ending June 30, a quarterly record for the company.
“Finding low-mileage late model cars is still very difficult,” he said. “The supply is improving a little bit, but you still see leasing activity happening because the residuals are so strong. Interest rates are still cheap.”