Toyota is seeing shift towards two-year leases

Article by Christian A., on July 2, 2014

Toyota expects a substantial surge in two-year leases this year, which could mean faster customer turnarounds and fuller used-car inventories in the future. The expectation was based on the fact that Toyota Financial Services has seen so far this year leases covering periods of 27 months or less account for 17 percent of its lease portfolio – compared to just 4 percent in 2013.

For Lexus, two-year leases have accounted for 36 percent of its lease portfolio so far this year, from just 24 percent in 2013. The shift to two-year comes as Toyota Motor Sales U.S.A. depends more on leasing to move Toyota, Scion and Lexus vehicles.

Chrysler also had seen higher percentage of two-year leases this year, although Ford and Nissan are seeing a shift away. This meant that that industry penetration of under-27-month leases remained at around9 percent of all leases, according to TrueCar data on captive and third-party lease deals.

TrueCar data also showed that three- and four-year leases remained the norm. The industry also sees periodic shifts between shorter and longer lease periods, as influenced by factors like interest rates, product cycles, residual values and used-car supplies.

The benefits of short-term leases include bringing customers back to the market more often. Mike Maroone, chief operating officer of AutoNation Inc., remarked that carmakers are "confident that retailers will buy the off-lease vehicle."

He noted that the 24-month lease shortens the trading cycle, allowing carmakers to sell more cars. However, short-term leases could come as a cost to the consumer due to shorter time frame to absorb their unit’s initial depreciation.

While monthly payments on a 24-month lease are higher than those of 48-month and 36-month leases, consumers are attracted to lower maintenance costs, less commitment and the chance to keep driving in a relatively new vehicle.

ToyotaCare program has been a popular offering for customers as it provides free maintenance for the first two years on lease and purchase vehicles. [source: automotive news - sub. required]

Topics: toyota, leasing

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