Leasing fueling record profits in auto sales

Leasing fueling record profits in auto salesWhile much has been in the news about how global auto sales are on the rebound, resulting in high profits for car manufacturers it now appears a key element contributing to the increase is customer’s leasing vehicles.

Toyota Motor Corp. has recently been offering $199 a month leases on its Camry in order to keep it being the top selling car in the U.S. and it now appears the company’s strategy is helping spur sales in the rest of the industry.

At one time leasing was primarily a tool auto makers used to sell luxury vehicles in order to make them more affordable to consumers. However, in recent years leasing has become popular among common everyday vehicles such as family sedans, such as Ford Motor Co.’s Fusion and Honda Motor Co.’s Accord, which are both hot-selling items these days.

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

The trend towards leasing is pushing U.S. car and light truck sales to their highest levels since 2007 and deliveries for July could climb 15 percent to 1.33 million based on the average estimate of nine different analysts asked in a survey by Bloomberg News, which is reporting that the annualized industry sales rate after adjustments for seasonal trends could climb to from 14.1 million a year earlier to 15.8 million this year.

By offering leasing options for their vehicles, auto makers obtain benefits beyond the competition to achieve the coveted title of top selling vehicle; under leasing arrangements the vehicle is eventually returned to the auto maker who is assured of having a ready-made supply of used cars that are returned after just a few years and for the most part are in excellent condition, enabling them to resold at higher values than traditionally priced for used cars. Additionally, lower interest payments are allowing auto manufacturers to offer the cars at cheaper monthly payments than before.

While leasing historically was geared towards more expensive high-end models, by offering leases on lower priced vehicles, automakers have an excellent prospect of creating customer loyalty who could possibly chose to upgrade to a higher class of vehicle when they bring their cars back at the end of the lease.

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About the author

Drew is a regular contributor covering trending topics.