Breakout

Auto Leasing Is About to Make a Huge Comeback: Colas

Breakout

From the campaign trail to Super Bowl ads to the latest sales data that came out earlier this month, the auto comeback story has gotten plenty of attention lately. And why not, given the critical contribution that cars play in our economy and our everyday lives. In fact, Nick Colas, chief market strategist at ConvergEx Group, says, "It's one of the few areas where the economic cycle has worked exactly as it should."

While strong auto sales have been a bright spot amidst an otherwise lackluster comeback story, there's fear on the street that things may have peaked now that the annual sales are running north of 15 million units again. But before you sell your stocks, or trade in your clunker, Colas says automakers are about to ramp up their leasing efforts in a bid to keep the good times rolling.

"As leasing expands, the population of new car buyers expands," Colas says in the attached video. "It allows a whole branch of customer, who typically can't afford it, to come into a dealership and buy a new car."

By way of comparison, this former auto analyst and self-confessed subscriber to Automotive News says even though sales have jumped from 9 million in the trough to 15 million today, leasing has yet to experience a comparable rebound. According to Colas, for the last couple years leasing has been "roughly 20%" of demand in the U.S., but that's "down from 40% to 45%" in the '90s.

"Auto companies love leasing because it gives them a shot at that consumer again," he says. "Carmakers really see leasing as an opportunity to offset some of the challenges that consumers are facing right now." Simply put, Colas says it makes the product — new cars — more affordable to the masses.

In contrast to a stagnant economy, tepid job growth and flat wages, Colas points out that the demand for and prices of used cars are on the rise. And when it comes to auto leasing, that's a good thing.

"People don't appreciate how valuable their used car is," he says, pointing to a three-year, 25% jump in pre-owned prices. That makes a huge difference when it comes to calculating the residual or projected value of the car at a future date. As he sees it, the coming wave of deals boils down to simple math and economics.

"The better the used-car market, the lower the [lease] payment every month," and the lower the payment, the more affordable these pricey products suddenly become for the masses. It's a trend that Colas predicts "is going to give a nice boost to auto sales."

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