|Car Leasing Runs Out of Gas|
|Subject||Consumer equilibrium, comparative statics|
|Key Words||Leasing, financing, consumers, incomes, loans, incentives, interest.|
The leasing of vehicles hit an all-time high in the first half of 1998, accounting for 33.8 percent of the market. However, in the first half of 1999, the share fell to 32.2 percent, reflecting a drop in volume for the first time in eight years. It is expected that the lease share will decline to 29 percent in 2000. Instead, consumers are returning to traditional financing.
One reason is that the economy is strong. When incomes are rising fast, consumers tend to buy vehicles, but when the economy is slower, they tend to lease more because of lower monthly payments. Actually, while higher-income men are leasing less, upper-income women are leasing more, perhaps because buying a car is more of a status symbol for men.
Another reason is that auto makers are offering fewer leasing deals with small down-payments and low monthly payments. In the past, they had been too optimistic about the value of a car at the end of the lease. Banks had made similar errors and some no longer back leases. Cash incentives and low-interest loans are more likely in the future.
(Updated October 1, 1999)
|Source||Earle Eldridge, "Fewer drivers leasing autos," USA Today, July 27, 1999.|
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