During the course of the pandemic, new vehicle inventory dropped to historic lows amid high demand, which caused prices to skyrocket. Even though production is back on track and inventory has since increased (in some cases, dramatically), used and new vehicle pricing haven’t declined by much, either. This phenomenon meant that for some time, most that leased a vehicle in recent years have found themselves in a great spot, as they were able to buy those vehicles at the end of the lease term and sell them for a profit. Ford lease return rates have largely remained well below pre-pandemic levels, but a new report indicates that they are expected to plummet in 2025, too.
According to S&P Global Mobility, lease maturities are projected to fall by 41 percent in H1 2025 compared to the same time period in 2024, which could result in one million fewer used vehicles available for dealers to sell. Premium models will reportedly be impacted the most, with a 46 percent drop in turn-ins, followed by mainstream models at 39 percent. Traditional ICE model lease turn-ins are projected to plummet by 42 percent, while EVs are expected to drop five percent, though plug-in hybrids are slated to increase by six percent.
As for why this is the case, analysts point to a couple of motivating factors. For starters, the most popular lease term is 36 months, meaning that the vast majority of existing leases set to expire next year began in the first half of 2022 during a time when new vehicle inventory was low and the average payment was 10 percent higher as a percentage of MSRP when compared to 2019. At the same time, finance payments held the line in terms of percentage to MSRP, meaning that many returning lessees in H1 2022 opted to finance their next purchase instead of lease.
Additionally, in H1 2022, the share of lessees who returned to the new vehicle market and leased a new vehicle was 64 percent, which represented an eight percentage-point drop from H1 2020 and H1 2021. Thirty percent of lessees who returned to the market in H1 2022 financed their new vehicle, up from the typical 24 percent share, and of the lessees who came out of a 36-month lease and chose to finance instead, many opted for longer loan terms – 22.5 percent chose a 60-month loan, 45.2 percent opted for 72 months, and 17.6 percent went with 84-month terms. All of this means that used vehicle inventory could be impacted significantly not only next year, but also, perhaps all the way up through 2027, as Ford Authority recently reported.
Comment
What is H1, ???