The Santa Monica, Calif.-based, automobile-focused consumer research firm analyzed car registration data and found that leases accounted for 28.9% of millennial car purchases. This compared to an overall lease penetration rate of 26.7% and represented a 46% increase in millennial car leasing over the last five years, the statisticians added.
The car research firm attributed the trend to millennials’ awareness of their budget limitations and ability to lease more car than they would be able to buy.
“Most millennials understand and accept that they’re on a tight budget and that they need to stick to it,” Edmunds.com Director of Industry Analysis Jessica Caldwell said. “But it doesn't mean that their financial constraints limit them only to the most basic vehicles to get from Point A to Point B. If they see a chance to get into a nicer car while staying within their budget, they are likely to explore that opportunity. In most cases, leasing opens the door to the bells and whistles that they couldn't otherwise afford.”
Edmunds.com pointed to a June survey of millennials in which 57% said they would put no more than $2,999 down toward a new car purchase and 54.9% said they would pay no more than $299 per month.
By staying within those parameters, millennial car shoppers who wanted to finance an auto purchase would be limited to vehicles priced under $20,000. But if they leased a car, millennial car shoppers would be able to afford a car or truck priced up to $35,000.
Millennials Likely to Lease: Edmunds
Auto leasing allows budget conscious millennials to get more for their money, research firm says.
Millennials also tend to lease more when it comes to certain car brands, and not just luxury ones, Edmunds.com reported. While leases show greater penetration among millennials buying automobiles made by Lexus, Jaguar, Cadillac and Buick, the company said, they’re also likely to lease those made by Subaru, Scion, Mini and Acura.
The $5.2 billion, 260,000-member Teachers Federal Credit Union said it has found auto leasing to be a strong strategy for both drawing in new members and diversifying its loan portfolio.
The Hauppauge, N.Y.-based credit union has participated in auto leasing with CU Xpress since 2007, according to its assistant vice president, Francis Collins.
Collins reported the credit union financed roughly $264 million in auto leases in 2014, which compared to roughly $100 million in both conventional new auto loans and balloon new auto loans over the same year. With a balloon auto loan, low monthly payments are made over nearly the entire life of the loan and followed by one final, large payment that the borrower either makes or refinances, Collins explained.
Teachers FCU members favor leases, Collins said, because of the flexibility and overall lower payments they offer, adding that the credit union likes them for their security and slightly larger profitability spread. Currently, Teachers FCU's average auto loan interest rate stands at 1.45%, while its average lease money factor stands at 2.64%, he said.
Collins added that in the eight years since Teachers FCU has begun offering auto leases through CU Xpress, the cooperative has taken back a very small number of previously leased cars. In those cases, which typically occurred due to a non-economic factor that led the borrower to abandon the lease, the credit union has managed to find a buyer for the vehicle.
In 2013 and 2014, Edmunds.com stated that it saw a bright future for auto leasing, but also noted a few factors that could undermine auto leasing. First, a growing number of used cars returning to the market after they have been leased could swell the used auto market, driving their prices down and heightening the cost of future auto leases. Second, it is unclear how well leasing will do if monthly money factor payments rise along with higher interest rates, the firm said.
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