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Deals on Wheels : Auto Industry Sees a Major Shift to Leasing

September 12, 1993|DONALD W. NAUSS | TIMES STAFF WRITER

DETROIT — Experts call it a fundamental shift in consumer behavior:

More and more new car customers are leasing rather than buying a vehicle outright or financing it over several years.

A broad spectrum of motorists no longer thinks it is important to own the car one drives--a development akin to homeowners saying it is all right to rent.

The American Dream may never be the same. "We are seeing a major cultural change," said George Reganis, director of leasing for General Motors Acceptance Corp., GM's financing unit.

Although leasing has been an option for decades, it mostly was relegated to luxury cars or business use.

Today, though, drivers of pickup trucks, sport utility vehicles and subcompacts are as likely to lease as executives who prefer higher-priced cars. Even used cars can now be leased.

One of every four cars "sold" to individuals in the first half of this year was leased. The ratio could reach one in three in a couple of years, and perhaps one in two by the turn of the century, some experts predict. (Detroit counts leases as sales; technically, the dealer sells the car to the finance company, which then leases it to the customer.)

This move into the mainstream has been spurred by innovative terms--leases running for just two years, deals requiring little or no money down and affordable monthly payments.

"The trend is not likely to abate any time soon," said Art Spinella, president of CNW Marketing Research, who monitors leasing activity from his office in Bandon, Ore.

President Clinton's economic program is likely to boost leasing, he added, because higher taxes for the affluent will put more pressure on their disposable income and making it more difficult for some people to buy cars outright.

As with many automotive trends, California has been a pacesetter. In some areas, such as Orange and Marin counties, about half of all new vehicles are leased.

Leasing's coming of age is comparable to that of home equity loans. Although home equity loans were available for 30 or 40 years, it was not until the boom in California housing values in the 1970s that they came to be widely used. Their popularity then slowly spread to the rest of the country in the '80s, as their benefits became better understood and recognized.

"Leasing has reached that same stage of general consumer acceptance," said Randall R. McCathren, executive vice president of Bank Lease Consultants in Nashville, Tenn. "It has reached a critical mass."

Consider John and Judy Maczko of Washington, Mich., 30 miles north of Detroit. They have leased three cars and two pickup trucks in the last four years.

And they have no intention of owning a vehicle ever again.

"We find it cheaper and easier," said Judy Maczko, 36, who sells eyeglasses. "We are both busy. We don't have to worry about tires and brakes, the things that go wrong after two or three years."

She drives a Ford Escort subcompact, and her husband has a Ford Ranger pickup. Their monthly payments, after small down payments, are $269 and $139.

"The constant monthly payment can be rough," Maczko said, "but we still feel like we own the vehicle. And at the end of two years we just get a new one."

Not everyone is a convert. Older people who have owned a car most of their lives are the most reluctant, believing leasing is only for the wealthy or business executives.

And, some areas of the country--such as Texas, with its anti-bank tradition--are very skeptical of leasing. Some dealerships remain wary, despite auto makers' efforts to inform them of the advantages.

In Sepulveda, Calif., Galpin Ford is trying to counter the resistance by educating its sales staff and potential customers on the ins and outs of leasing deals, said David Krier, director of leasing and financing.

"Some people are still apprehensive about leasing," he said.

Industry officials say the rising popularity of leasing is being driven by several factors: Car prices are rising faster than incomes; improved quality is keeping cars on the road and buyers out of showrooms longer; competition for the consumer's extra dollars as new things to buy--such as home entertainment gadgets--become more enticing.

To cope with these forces, car manufacturers have had to come up with ever-more clever marketing schemes. Rebates and incentives worked for a while, but many buyers suspected hidden costs in the sticker price.

So the auto makers have turned to short-term leases, a move credited with helping to spur a surge in sales of cars and pickup trucks this year even while consumer confidence is low and the economy remains lackluster.

"Everybody is a winner--the customer, the company and the dealer," said Gail Duncan-Campagne, president of Jerome Duncan Ford in Sterling Heights, Mich. She said that about 60% of her dealership's sales so far this year have been leases.

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