Manheim chief economist Tom Webb says higher new-vehicle leasing this year will result in healthy returns for the used-vehicle industry.
Find out more about 2013 leasing penetration and its multiple effects.
Manheim chief economist Tom Webb first cited data from J.D. Power that indicated more than 3 million new-vehicle leases will be written this year, thanks to a penetration rate well above 25 percent.
With those numbers in mind, Webb contends those levels can — and should — move even higher, resulting in healthy returns for the used-vehicle industry.
“The shift in the new-vehicle market has been increasing skewed toward higher-income households,” Webb said during his quarterly conference call on Monday. “That is a trend which will continue. I believe these people like to trade on a short cycle and therefore leasing is the preferred product for them.
“As a matter of fact, I strongly believe there more people today in a very long retail contract that would have been better off in a lease than people who are in a lease and should have been in a retail contract,” he added.
Earlier last month, Experian Automotive reported that of all new vehicles financed in Q2, leases accounted for an all-time high of 27.64 percent during the timeframe, up from 24.4 percent in Q2 of 2012.
According to the latest State of the Automotive Finance Market report from Experian, the average monthly payment for a lease contract written in the second quarter came in at $408 for 35 months.
“In terms of where that lease penetration rate can go, I wouldn’t put any particular limit on it. It easily could go up another couple of percentage points higher without being done poorly,” Webb said.
Webb pointed to one specific factor that could derail lease origination from climbing.
“What could upset it all if the lessors start to see some residual losses,” Webb said. “Once those losses start to come in, they can snowball quite a bit and that would cause them to pull back from originations.”