By Julie Knakal, Executive Director, Data and Content
Management, and Alex Vinatrou, Senior Data Analyst, S&P Global
Mobility
As we approach the first half of 2025 (H1 2025), a seismic shift
is looming over the automotive market. We expect auto lease returns
to plummet compared to the previous year, potentially wiping out a
significant number of units from the industry.
The pressure is on for dealers and automotive lenders, but with
the right strategies, there's a silver lining. Read on to discover
what's driving these changes, why it matters and how your business
can turn this challenge into an opportunity.
A Major Drop in Auto Lease Returns: What the Data
Shows
In H1 2025, we project lease maturities to fall by 41% compared
to the same period in 2024. This significant decline could
translate into a hit of nearly 1 million vehicles to the
industry.
The premium market will take the hardest hit, with an expected
46% drop in lease returns. We expect mainstream segments to
experience a decline of 39%. Most major vehicle brands will see
decreases, but the range is wide—from a modest 11% drop to a
staggering 81% reduction in lease returns for some major
players.
What is Causing the Decline in Projected Auto Lease
Returns?
The reasons behind this shift largely stem from a change in
consumer behavior in response to the market conditions two to three
years ago.
There are a few key factors that influenced those decisions:
- Inventory shortages and pricing: The primary
lease term driving this decline is 36 months, so we need to
consider what was happening in 2022. Low inventory in H1 2022
pushed OEMs and lenders to reduce their customer and dealer
incentives, with the biggest impact on leases. This contributed to
an average 10% rise in lease payments as a percentage of MSRP from
2019 to 2022. On the other hand, finance payments as a percentage
of MSRP held steady. In part because of this differential,
returning lessees in H1 2022 who opted to replace their outgoing
leases often chose to finance their new vehicles instead. - Longer loan terms: In H1 2022, the share of
lessees who returned to the new vehicle market and leased a new
vehicle was 64%—an eight percentage-point drop from H1 2020 and
H1 2021. Thirty percent of lessees who returned to the market in H1
2022 financed their new vehicle—up from the typical 24% share.
Of lessees who came out of a 36-month lease and chose to finance
instead, many opted for longer loan terms: While 22.5% chose a
60-month loan, 45.2% opted for the longer terms of 72-months and
17.6% for 84-month terms.
Steps the Industry Can Take to Encourage Leasing
inH1 2025
The challenge in H1 2025 remains: how do we get consumers to
switch back to leasing? The good news is that the industry has
levers to pull, and lease payments as a percentage of MSRP dropped
in 2024.
- Adjust incentives: OEMs and lenders will need
to get creative to encourage returning lessees to opt for leases
again. Increasing incentives, particularly in the premium segment,
will be key to making leases more appealing as the market
shifts. - Target specific states: More than 50% of
projected lease maturities are concentrated in just five states,
ranging from a 24% drop in returns in Michigan to a 49% drop in
California. Tailoring strategies to these states could help dealers
and lenders better manage the decline in lease maturities. - Capture consumers who favor leasing: Many
consumers prefer to lease because it allows them to drive a new
vehicle every few years, ensuring they stay within warranty and
enjoy the latest technology. Dealers and lenders should target
these customers to ensure they remain loyal to leasing.
Looking Beyond 2025: A Path Toward
Stability
Although the challenges of H1 2025 will be significant, there is
light at the end of the tunnel. By H1 2026, the market should begin
to stabilize, and we should see more meaningful improvement in H1
2027, with growth due to a 21% increase in 36-month lease volume in
H1 2024.
That growth could increase to roughly 30 percent if recent
trends in lease volume continue, as 24-month leases that go out the
door in H1 2025 will begin returning in H1 2027. There is potential
for additional upside in H1 2027 and H1 2028 if OEMs can
successfully convert customers who have switched to financing back
into leasing. Even so, we expect total lease maturities in future
years to remain well below the higher levels seen from 2021 to
2024.
How Dealers and Lenders Can Prepare
- Promote lease return programs: To mitigate the
impact of declining lease returns, dealers and lenders need to
actively promote their lease return programs. This includes
reaching out to consumers before their leases are up and providing
them with clear incentives to lease again. - Focus on customer education: Many consumers
may not be fully aware of their equity position or the benefits of
leasing. Dealers should focus on educating their customers about
the value of leasing and how it aligns with their needs for lower
payments, newer vehicles and warranty coverage. - Leverage data to target potential lessees:
Data analytics will be essential to identify lessees who are most
likely to return to the leasing market. Dealers can use this data
to target their outreach efforts and create tailored offers that
appeal to these potential customers. - Offer creative financing and leasing options:
As vehicle prices remain high, offering flexible financing and
leasing options could be crucial to convince consumers to stick
with or return to leasing. Programs that make payments more
manageable, like deferred payments or trade-in programs, will be
essential.
Conclusion
The first half of 2025 presents not only a significant challenge
for car dealers and automotive lenders but also an opportunity to
adapt to changing consumer behavior. By understanding the factors
driving the decline in lease returns and taking proactive steps to
attract lessees back to the market, dealerships and lenders can
position themselves for success as the market begins its recovery
in the coming years.
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