The car leasing industry has significantly contributed to the transportation sector, benefiting individuals, businesses, and leasing companies. For financial benefits, leasing is a popular option for many individuals, and most businesses can increase their fleet size without incurring heavy financial burdens. Find out more about the advantages of leasing, including convenience, efficiency, and affordability.
Is leasing a viable future option, given the economy’s ills and the many benefits? How does the industry cope with challenges? Taking a close look at the rising trends and the challenges that the leasing industry faces can help the auto industry determine where the opportunity lies.
Trends to Watch in Car Leasing
It is estimated that the global car leasing market will grow significantly in the forecasted period from 2023 to 2030, with moderate growth over the last few years. Car leasing is expected to grow faster as old cars become obsolete due to technological advances. Considering this, what trends should the auto industry track for leasing?
The Electric Car Revolution Is Underway
Global delegates descended on COP26, and panic buying caused by fuel shortages surged across the UK, creating record numbers of sales inquiries for electric vehicles. Hybrids and plug-in hybrids outperformed diesel vehicles in 2021. Battery electric vehicles (BEVs) are the most popular electrified vehicles. According to Bloomberg New Energy Finance, almost 27 percent of new cars sold in 2021 were electric cars, and 80 percent were leased.
What opportunities does this present for the auto industry?
Between 2022 and 2027, Technavio predicts that the global electric car rental market will grow by USD 11,246.65 million. According to the forecast, the market will grow at a CAGR of 12.64 percent during the forecast period. It is estimated that Europe will dominate global market growth at 42 percent.
Start Including the Younger Demographic
Consumers often perceive leasing as a benefit for the wealthy. There is no surprise that lessees tend to be younger – under 45 years of age. It is now more likely that older purchasers over 65 will lease cars than they were, despite these trends shifting recently.
There has been a 20 percent increase in leasing in the ages of 18-24 due to financial and banking institutions making car financing harder to obtain. Final balloon payments are also a factor in why younger drivers want to lease.
Providing a lease to a younger demographic gives them a chance to build their credit history, which is an opportunity for the auto industry. It is common for young drivers with little to no credit history not to realize they can get a lease agreement with a guarantor. For younger drivers, leasing is a viable option because a guarantor covers their payments should they be unable to make them.
Industry Challenges in Car Leasing
How is the auto industry facing its most significant challenges?
The Interest Rate Is Rising
Leasing might become more popular as disposable income is reduced by high inflation. Increasing interest rates, however, are a significant deterrent for potential customers. Customers are discouraged from leasing cars because rising interest rates make them uncertain if they can afford the payments.
Consumers may find used cars even more challenging to afford, given the rise in inflation. Leasing is affected by interest rate increases, but the total amount consumers will pay for a lease will remain a fraction of the price of a new or used car.
Long-term car leases are an excellent opportunity for the auto industry. Leases that are longer in duration allow the consumer to spread out the loss of value over time, making them more economical than short-term leases.
Changes in Consumer Preferences
A higher percentage of new-car shoppers opt for leasing. There is a constant shift in consumer preferences, which presents a challenge.
Car leasing services are perceived as convenient and affordable by consumers. Despite these changes, the leasing industry must continue to meet customer preferences as the economy has changed.
Leasing companies must adapt their offers to continue to be as appealing and affordable to consumers as they once were.
Final Thoughts
Despite challenges, car leasing is predicted to grow by 20 percent by 2025. By looking for opportunities in the challenges and trends of the industry, the auto industry can thrive by adapting and taking advantage of these profound changes.
When the auto industry is willing to make the necessary changes, even if this means short-term financial pain before operational efficiencies become apparent, it will be best positioned to take advantage of opportunities in the long run. Check out Auto Seeks for more auto industry news, reviews, and features!
