A study from J.D. Power has found that auto dealerships and lenders across the United States will need to work together as the market heads into a downturn triggered by the coronavirus pandemic.
Approximately 31 per cent of new vehicles retailed in 2019 came through leases, J.D. Power reports, and that this figure has dropped to just 20 per cent during the week ending March 29. Covid-19 is partly to blame for this but car manufacturers have also launched incentive programs in recent weeks aimed at encouraging consumers to actually purchase new vehicles as opposed to leasing them.
J.D. Power’s 2020 U.S. End of Lease Satisfaction Study found that about 1.8 million consumers have been scheduled to return their leased vehicles between March and July.
“The market will recover and competition from banks and captive lenders will be fierce for the 1.8 million returning lease customers scheduled to turn in their vehicles in the next five months,” says director of automotive finance intelligence at J.D. Power Patrick Roosenberg. “Aggressive retail programs, some of which have already launched with 0% financing and deferred payments up to 120 days on extended term loans, will create more obstacles for lease retention.”
“Retaining lease customers is crucial for dealer and lender profitability as they navigate a constricting market and economic downturn,” Roosenberg said. “Communication through customer-preferred channels is paramount as dealerships temporarily close and lease customers navigate an unprecedented event, uncertain of their available options to defer payments, extend or terminate their leases.”
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Lessees are very important for car manufacturers, lenders and dealerships. No less than 53 per cent of first-time car lease consumers in the mass market segment have leased another vehicle with 58 per cent of them returning to the same brand. For one lender, 79 per cent of first-time lessees returned to the same brand.
Speaking with Auto News, Roosenberg said the drop in leasing rates will likely prove to be temporary.
“What the lenders are trying to do is present a lot of options to their customers in a difficult time,” he said. “You will see some conversion to retail, but lease customers tend to go back to leasing.”