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Automotive Industry Offers Great Incentives for Leasing

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On: Thu, Nov 4, 2010 at 2:26PM | By: Sherry Christiansen

Automotive Industry Offers Great Incentives for Leasing

The U.S. auto market has posted low profits of new car sales for the past couple of years, but according to Automotive News.com, there is a "silver lining" in the weak new car market.  Fewer new cars being sold translates to lower numbers of used cars available on the market for the next 2 or 3 years. Lower used car inventory will enable automakers to promote leasing without concern for whether or not returned lease cars will flood the market in 2012 or 2013.

As a result, automotive leasing has been making a come back in the past few months. In fact, leasing has climbed to approximately 21% of U.S. sales through September 2010, compared to only about 16% for all of 2009, according to Emunds.com.

"A lot less sales now is a lot less used cars later," Don Esmond, Toyota Motor Sales' senior vice president of automotive operations, said last week in Detroit. "Our arithmetic says leasing is a good deal. It's a good bet that resale values will be a little better later on."

Leases for new automobiles are now being offered with lower interest rates and shorter terms in order to get vehicles back sooner to enable dealers to have plenty inventory of used cars.

Every major auto manufacturer in the U.S. has increased leasing for 2010. Nissan, Honda, and Toyota offered leases for at least 25% of sales volume through September. GM, Chrysler, Hyundai and Kia have also increased leasing this year.

Ford Motor Company reports the smallest increase in leasing in the past year at only 13% compare to 11% in 2009.

But according to analysts, leasing is still risky: "there are manufacturers doing more leasing now, thinking the 2012-13 market will be more favorable," analysts said. "But that depends on a stronger economy and a more robust new-car environment. We're still being cautious."

“A strong recovery is no certainty,” said George Magliano, a forecaster for IHS Automotive in New York. "It all depends on our future forecasts being right," he said.

Incentives have risen to approximately $3,000 on average for lease vehicles; that’s up from around $2,000 in 2009.

Lower interest rates have also been an incentive for leasing. Interest rates have fallen to 3.2% for the automotive industry; that’s almost a point lower than last year. According to Automotive News: “GM's lease interest rate averages 2.1% this year, down from 4.9% last year. Chrysler averaged 5.4% last year, but 2.8% this year.”


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