US car-buyers, it seems, don’t want to lease vehicles anymore.
Leases made up 31% of the auto market in January 2020, and just 17% last July, according to a new auto study from consumer credit reporting agency TransUnion.
Of 3.8 million consumers who ended a vehicle lease between July 2021 and June 2022, only 25% of consumers chose to lease again, according to TransUnion. That’s a 40% decline from January 2020.
Instead, these drivers opted to finance a new car purchase or purchase a vehicle without financing, even though the former meant an increase in their monthly payment.
Moreover, in that same period, about 26% of consumers ended their lease six or more months prior to the expected lease-end date, up 63% since 2019.
This is happening for a couple of reasons. For one, leasing is getting more and more expensive. The average lease payment hit $661 in December 2022, up 33% from March 2020, according to Cox Automotive.
Inventory constraints played a role in this decline, per TransUnion. Shoppers don’t want to keep going back into the market to look for another vehicle every two to three years, especially given the inventory challenges seen at dealerships throughout the pandemic.
Car-owners, in general, are also holding onto their cars for longer. S&P Global Mobility found the average age of a vehicle was 12.2 years in 2022. Much of that has also been driven by the chip shortage’s impact on the number and type of new and used vehicles that could be bought on dealer lots over the past few years.
Consumers are also willing to invest more money into maintenance as the value of their vehicles have increased and vehicle quality means a longer expected use life.
“The vehicle parc is now hundreds of billions of dollars more valuable,” Cox senior economist Charlie Chesbrough said at a recent Federal Reserve Bank of Chicago annual auto insights symposium in Detroit. “Do I replace that engine? Do I fix that transmission and spend thousands on this vehicle? The economics have really changed to suggest, yes, it makes more sense to invest in that vehicle.”
That all means there will be fewer, low-mileage yet newer vehicles headed to the used market.
Fewer used vehicles in the market, but with the same amount of demand, will keep used vehicle inventory low and their prices relatively high.
Used vehicle prices have been up for several months now, and are just starting to creep downward, with the average cost at $27,143 in December, per Cox.