Leasing Revs Up Sales, Giving More Americans Chance to Drive Away In Fancy Set of Wheels
GOODBYE $1,000, eight-year-old, rusty Datsun. Hello $30,000, sleek, 1992 Mercedes.
Welcome to America's new used-car market - the hottest in a decade. You may not recognize it from a few years ago. Gone are most of those old, beat-up, dirt-cheap clunkers. In their place are, among others, sturdy four-wheel drives that are all the rage on the Tarmac and practically brand-spanking-new cars of status, with names such as Cadillac and Jaguar embossed on their dashboards.
This is ``more than a revolution, it's a reincarnation,'' says Art Spinella, vice president and general manager of CNW Marketing/Research, a Bandon, Ore., company specializing in the automotive industry. ``People have a pent-up demand. Their choices used to be a new car or the $1,000 Datsun. Not any more.''
One main reason is leasing. Though several financing options are now available, leasing, especially, has opened the door to a huge new group of consumers who can't afford the 20 percent to 30 percent down payment on a new-vehicle purchase, but who can make the start-up fees and lower monthly payments on a lease. The result: the best-selling new- and used-car markets since 1984.
For new vehicles, the 11.8 million sold in 1983 has risen to 13.9 million in '93; for used cars and light trucks, sales have jumped from 10.6 million in '83 to 16.3 million last year. And sales are expected to climb this year to 15 million and 17 million, respectively, says Ted Orme, spokesman for the National Automobile Dealers Association in McLean, Va.
Though leasing has been around for about 30 years, it did not begin to catch fire with the general public until the late '80s. Mr. Spinella attributes the boom to several factors: rapid increases in new-car prices; elimination of many tax benefits that favored buying in the 1986 Tax Reform Act; and shortening of most leases from five to 10 years in the early 1990s to two or three today. The shorter contracts now make up 80 percent of the total.
Leasing is fueling both used- and new-car sales. The aggressive lease program of the Ford Motor Company of Dearborn, Mich., was a key reason why the Taurus leapfrogged over the competition last year to become the No. 1 selling car in the United States, Mr. Orme says. Through the 1980s, about 10 to 12 percent of retail sales of cars and light trucks, not including fleet vehicles, were leases. A lease is considered a sale by the auto industry. The percentage of lease sales has accelerated to about 25 percent and is expected to rev up to about one-third of all sales within a year, he reports.
Orme pinpoints higher auto prices as the largest factor contributing to leasing growth. ``It's affordability. For 1993, the average price of a new vehicle was $18,200, 59 percent more than the average price in 1983 - $10,725.'' Average used-car prices also have skyrocketed, from $5,250 in 1983 to $9,130 in '93.
Image is another factor - the chance to call one's own a coveted set of wheels that otherwise would be out of the reach of many consumers. Two types of vehicle stand out today as red-hot: the light truck (sport-utility vehicle, pickup, and van) and the status vehicle, as represented by the prestigious Mercedes and Cadillac, and newer entries such as the Lexus and Infiniti.
Of the 13.9 million new vehicles sold in the US last year, 5.4 million - or a whopping 39 percent - were light trucks, such as the Jeep Cherokee and Isuzu Trooper, making this the strongest single market category today. That percentage is up considerably from 10 years ago, when the light truck accounted for 22 percent of the market, Spinella says.
The statistics also clearly show that lessees prefer luxury cars: While about 9 percent of new-car buyers choose luxury models, 90 percent of used-car lessees select them, he says. They are mostly career women, salespeople, and professionals buying a second household car.
One Boston area resident shopping in the city recently says he is pleased with his decisions to lease eight vehicles over the last 10 years: ``I've found that leasing is less of a gamble [than] buying. It means less of a cash outlay, so we were able to get what we wanted and have the option of buying it, generally at a lower rate, when the lease [expires], or, if it's a lemon, turning it back in.'' He and his wife now drive a leased 1993 Nissan Pathfinder sport-utility vehicle and 1994 Pontiac Grand Prix.
To buy a $41,560, fully equipped 1995 BMW 525, with a 25 percent down payment, for example, requires about $10,000 upfront, plus sales and luxury taxes. Monthly payments on a three-year loan with a 9 percent interest rate will run about $1,045.
To lease the same car, however, requires only about $1,500 upfront - the first month's payment and a refundable security deposit - plus the luxury tax and a sales tax based on the monthly payment. The lessee pays about $750 monthly.
In today's market, several vehicles are rating higher than expected in ``residual value,'' the leasing company's estimate of a vehicle's value at lease expiration. For the most popular models, this value is close to $2,000 less than market value, meaning that a lessee could buy that vehicle at the lower residual value when the lease expires, thereby saving a considerable sum of money.
Though leasing has many advantages, Orme explains, buying is perhaps the better option for a driver who accumulates high mileage and excess wear and tear on the car or for one who wants to keep the car for many years.