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Consumers turn sour on leases

November 22, 2010
Steep decline, fed by rich incentives to buy, is good for automakers, bad for dealers The number of people leasing domestic vehicles has declined drastically over the last four years, a byproduct of zero percent financing and huge cash incentives to get people to buy new cars. The trend has positive implications for Detroit's Big Three, which have fewer off-lease vehicles to try to sell at  auctions. But it presents challenges as well. Sales could drop if traffic falls off in domestic-brand dealerships in the coming years as people pay off 5-year loans rather than turn in 3-year lease vehicles. According to R.L. Polk Co., leasing of domestic and Asian models has dropped from more than 20 percent in 1999 to below 10 percent today. The leasing fall-off has been less dramatic for European brands-34 percent this year compared to 38 percent in 1999. European luxury brand buyers tend to prefer to turn in their vehicles more often, which makes leasing attractive. The dramatic decline in leasing has the potential to change the markets for both new and used cars. If consumers switch from 3-year leases to 5-year loans, they will be in dealerships less often. To further make new car purchases affordable, some automakers are even offering 6-year loans. Leased vehicles also are used to supply dealers' growing certified pre-owned businesses. New-car dealers are increasingly using the lure of cheaper, factory-certified used cars to establish a relationship with consumers. Fewer cars coming off leases might diminish the stream of clean used vehicles that can be factory-certified. The Polk data show a dramatic decline in domestic brand leases immediately after Sept. 11, 2001. In September 2001, leases accounted for 13.2 percent of domestic sales. One month later, leases fell to 8.3 percent.