Bringing these customers back to dealers in a way that approximates a normal leasing cycle is “something we have to create, because so far we’ve had 30% of our portfolio come back automatically.”
Leasing has grown into an essential tool for the automotive industry. Not only does it drive new car sales, but off-lease vehicles, especially those that come with prepaid maintenance like Toyota’s, also serve as a valuable raw material for profitable certified pre-owned vehicles. Leasing also provides automakers and dealers with a relief valve against monthly sales, allowing them to bring forward leased vehicles when sales are slowing or extend lease terms when inventory is tight. will do so.
However, industry-wide leasing rates have been hit by declining inventories due to production and parts disruptions over the past 18 months, and the ensuing subsequent reduction in automaker incentives. As automakers’ leasing subsidies dwindled, consumers often found their monthly installment loan payments to fall.
Cox Automotive senior economist Charlie Chesbrough wrote last month: [of all new-vehicle sales in the U.S.] Cox forecasts that leasing penetration will drop to 19% in 2022, and “may drop further based on current trends,” he said.
Christ said leasing for Toyota and the industry as a whole was unlikely to return to pre-pandemic levels “until the industry has inventories and dealer inventories and demand does not outstrip supply.” In that case, Toyota’s traditional leasing customers will likely return to leasing deals when conditions return to near-normal, he said.
“To me, changes in leasing have more to do with market dynamics and changes in transaction prices than whether customers really want to lease them,” said Christ.
But it may take creativity to bring them back, and the timeline is likely longer than 36 months, as current retail deals take time to build equity, he said. Luckily, inventory is just starting to build up from historically low levels, giving the brand time to come up with something new to roll out in the mid-decade.
“We’ll have to appeal to them differently, market them differently, but I think we can give them a chance to come back in three or four years from a retail deal.” That’s something we have to keep working on and I don’t think we’re there yet in terms of needing to do that because our demand is still outstripping our supply. It’s going to flip…and…in that case, we’re ready to talk to those customers and get back to leasing.”