The automotive market is going through another shift, and it’s probably unsurprising that it’s because of the pandemic. Since leases mature at about three years, we will feel the effects of the decreased number of leases during and right after the pandemic. So, what does this mean for lease returns in 2025?
What Does an Auto Lease Mean for a Car Dealership?
There’s a big difference between a loan and a lease, not only for the customer but also for the car dealership. When a customer buys a vehicle, there is no guarantee that they will trade it back into the dealership when they want to upgrade. Leases are more likely to generate repeat customers for the dealership because they have to either bring it back after two or three years or purchase it from the dealership.
When a lease customer returns their vehicle, it turns into a nice certified pre-owned vehicle that the dealership can now sell.
The Drop in Leases During the Pandemic
There were a whole host of issues for automakers, car dealerships, and car-buying customers during and after the pandemic. The chip shortage created a situation where people couldn’t get new cars, so they were not buying or leasing them.
Since the number of leases significantly declined, there are fewer returns heading back to the dealership.
What Does This Mean for Car Buyers?
The effects of this will impact consumers differently depending on which side of the process they are on. If you have a leased vehicle to return or you’re looking for a new lease, it’s good news, especially if you qualify for competitive financing. These car shoppers are probably in for a pretty good deal, whether it’s lower rates or other types of incentives, such as delayed payments for a few months.
On the other hand, if you’re looking for a high-end, late-model used car, especially if it’s a luxury vehicle with high depreciation, it’s going to be tougher to find one.
Are There Other Reasons for the Lease Return Cliff?
It’s not just the decrease in the number of leased vehicles that is impacting the return rates. Lease buyouts are also increasing. This means that instead of returning a leased vehicle at the end of the contract, consumers are choosing to buy the vehicle and keep it. This leaves car dealerships without the inventory they might be expecting when the contract ends.
Don’t Worry, There is Light at the End of the Tunnel
While dealerships may face some challenges in 2025, there is some light at the end of the tunnel. By the first quarter of 2026, the market is expected to stabilize, and there should be even more improvements by the time 2027 rolls around. Lease volume increased in 2024, which means by 2027, lessees will start returning their vehicles, giving car dealerships the used car volume they need to fill their lots.
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