Automobile lease ending quickly? One other one is probably not the best choice
Ty Wright | Bloomberg | Getty Images
As you near the end of your car lease, don’t assume that another one is the best option this time around.
As many consumers switch from leasing to leasing – which puts them in a new vehicle every few years – the pandemic has turned the auto industry on its head. This usually means that the calculation has changed as to whether another lease makes sense, say experts.
First of all, “The ability to quickly access the car you want is not there,” said Pat Ryan, founder and CEO of the auto shopping app CoPilot. “You might wait three to six months for it.”
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An ongoing global shortage of microchips – key components needed to power today’s automobiles – that began last year continues to hamper manufacturers’ production of new vehicles, which has resulted in demand exceeding supply.
According to a forecast by JD Power and LMC Automotive, the average time a new vehicle is on a dealer lot before it is sold is 26 days. Two years ago – before the pandemic broke out – it was 62 days. An estimated 54% of vehicles were sold within 10 days of arriving at dealerships in October.
This supply imbalance has brought the average amount paid for a new vehicle to around $ 44,000, according to JD Power / LMC forecast. That’s 19.3% more than in October 2020 when the average transaction price was $ 36,887.
One reason for the record transaction prices is that manufacturers have cut their incentives because they generally don’t have to offer huge discounts to sell cars now.
Consumer demand has also expanded into the used car market, which is also driving up values there. For vehicles 1 to 3 years old, the average retail price according to CoPilot is $ 38,974, up 46% from $ 26,627 two years ago.
The good news for lessees is that your current car may be worth more than expected – and gives you the opportunity to capitalize on the difference. CoPilot has a tool for its members to help determine the value.
You’re sitting on a win, but when you give it up you give that win to the dealer.
Founder and CEO of CoPilot
In other words, you can potentially get your lease on for less than you would pay for the car if it were on a dealer’s property. This is because the residual value – the value of the vehicle at the end of the lease – was determined when the lease was signed a few years ago.
“You paid for a write-off that didn’t take place,” Ryan said. “You’re sitting on a win, but if you give it away, you give that win to the dealer.”
Additionally, the bells and whistles you have on your existing car might not be the closest, he said. Due to the lack of chips, some functions – such as driver assistance and monitoring systems or monitoring of the blind spot – have been discontinued by some car manufacturers.
“You may not get new features for the next car or even the features you currently have,” said Ryan.
And with car prices at record highs, the next lease would reflect those increased levels, he said.
“What we advise our members to do is buy and keep an eye out,” said Ryan, adding that prices can generally be expected to normalize when inventories eventually return to normal.