How leasing boosted the auto industry
Analysts expect car sales to set ten-year records this summer, part of a trend that is two or three years in the making. Lots of factors contribute, including low interest rates and a decent job market, but one in particular caught our eye: the rise of leasing.
It’s a piece of marketing genius.
As Edmunds.com analyst Jessica Caldwell explains it, “Leasing guarantees that someone’s going to need a new car in two or three years, when their lease expires.”
The strategy goes back to the recession, when new car sales were in the toilet.
“As a result there weren’t a lot of used cars,” Caldwell says. With supply depressed, used car prices went up, and car companies realized they could make good money selling used cars— that is, cars with expired leases. Good enough money that they could charge less for the lease itself.
“Lease payments were really cheap, and all of a sudden, everyone started leasing,” Caldwell says.
That was 2012. Today, more than a quarter of new cars are leased.
At Perillo BMW in Chicago, salesman Rick Tattoni confirms Caldwell’s analysis.
“That’s a fact,” he says. By roping customers into a two or three year cycle, “you keep the wheel moving, and that’s why they thought of that.”
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