More Car Shoppers Leasing Again

We’ve been beating this drum for at least six months now: Leasing is back with a vengeance. After a painful lull in 2009, attractive lease rates and high trade-in values are reviving leasing as a viable option for some car buyers, according to R.L. Polk & Co. That’s good news for shoppers looking to get more car at a lower monthly payment.

Nearly 19% of all car shoppers leased in 2010, up 5.8 percentage points from 2009 (13.1%), according to Polk.

The biggest beneficiaries are luxury carmakers like Mercedes-Benz and BMW, which relied on leasing for more than 50 percent of their business in 2010. Leasing is an attractive option for folks trying to get into a luxury vehicle.

Enticing Lease and Financing Deals Return to Car Market

A sense of normalcy seems to be returning to automotive financing, a good thing for the nearly 90% of car shoppers who finance or lease their vehicles, according to CNW Marketing Research.

With short-term interest rates near 0%, banks now can offer 3% to 4% financing, according to Bankrate.com. That’s the lowest rates have been since the downturn, according to The Detroit News.

Tax Season Is Here; Remember Your Hybrid Tax Credit

Most parts of the Alternative Motor Vehicle Credit — which helped spur initial demand for hybrid vehicles — have expired, but if you bought your vehicle in 2010, you could still be eligible for a tax credit, depending on your purchase. If you bought an electric car, there’s a separate credit worth up to $7,500.

To be eligible for the credit, you need to have purchased a fuel-cell, hybrid or electric vehicle, or a vehicle fueled by an alternative source of energy, such as compressed natural gas, or an advanced lean-burn vehicle. Tax credits range anywhere from $487.50 to $7,500, depending on make and model. To check out if your new-car purchase qualifies, check out our updated advice page.

Tax Credits and Cars (Cars.com Advice)

High Trade-In Value Good for New-Car Shoppers, Not Used

New cars are getting more affordable, we learned earlier this week. Now a Cars.com analysis, along with information from the National Automobile Dealers Association, has found that trade-ins are commanding higher prices as well. That’s a double whammy for new-car shoppers looking to buy now. However, it won’t be appreciated by first-time used-car shoppers with no trade-in as a down payment.

NADA expects a 4% drop in used-car vehicle supplies throughout 2011, leading to a 5% to 10% price increase in used-car auctions, which are one of the primary methods for car dealerships to acquire used vehicles. Gary Johnson, sales manager at Jimmy Gray Chevrolet in Memphis, Tenn., said he’s paying about 10% more right now for used cars at his store compared with a year ago. “Normally, in the wintertime [used cars] get a little bit cheaper, but that’s not the case right now,” he said.

Buyers Spend Less for New Cars, More on Financing

The average new-car shopper spent about 3% less on a total new-car purchase in the fourth quarter of 2010 compared with the previous quarter, according to a recent report from Comerica Bank.

Despite the decrease, average financing interest rates rose 4.6%, the highest rates have been since the beginning of 2009. The average interest rate right now is 5.23% for a 60-month loan, according to Bankrate.com.

The total average transaction price on new cars was $27,100 in the fourth quarter. Put another way, it now takes 23.7 weeks of median family income to buy a new car, an improvement of 0.1 weeks.

It’s important to note that this doesn’t mean automakers are charging less for their new cars. It just means that consumers are opting for less expensive trims/models, capitalizing on incentives or finding better financing.

If you take out financing, the average total vehicle cost drops down to $23,700, which is $700 less than in the fourth quarter.

Considering Nissan Leaf or Chevy Volt? Leasing May Make More Sense

In the next two months the Nissan Leaf and Chevy Volt will officially go on sale, both with $7,500 in federal tax credits that have been heavily advertised and marketed to potential buyers. However, that $7,500 isn’t going to be easy to come by for all buyers. That’s why leasing one of these two cars may be the more accessible option.

If you’re thinking about buying, here’s what you have to keep in mind: To take the full $7,500 tax credit, you must have a tax liability of at least $7,500. For a single person, the minimum gross income needed to reach the $7,500 liability level is $54,680, according to Bob Meighan, VP of TurboTax, the tax software company owned by Intuit.

While that may sound like a lot, the salary is just about right for Leaf and Volt shoppers, according to Credit.com, which says that an individual shouldn’t spend more than 15% of his or her pay (after payroll deductions) on a car payment.

While the Volt’s $40,280 and Leaf’s $32,780 asking prices are significantly higher than the roughly $28,000 average asking price of today’s new cars, leasing may be one way for folks who make less money to go electric.

Are Cars Becoming Less Affordable for the Average American Family?

The short answer to that question is yes. New cars are becoming more unattainable for some Americans as the average transaction price involved with buying a new car has edged upward recently. This reverses a trend of cars becoming more affordable since 1997. 

The average cost of buying a new car has increased by $950 to $27,950 since the first business quarter of 2010, according to Comerica Bank, which regularly composes an auto affordability index. That’s a 3.3% increase. 

To put it another way, it now takes 23.6 weeks of median household income to purchase a new car, according to Comerica. That’s exactly the same amount of time it took to buy a car in the first quarter of 2010 and about a week and half more than last year when it took less than 22 weeks of income. 

Despite the nominal increase in the cost of a car, lower interest rates and an increase in personal income has kept affordability mostly in check in 2010. In the current quarter, the median family income went up 2.4% while interest rates for car loans fell to a 4.1% average. 

Overall, cars and financing are far more affordable today than they were 1997, when it took about 31.5 weeks of income to buy a car, or before the recession in 2006 when it took 27 weeks of income. 

New cars become slightly less affordable, index shows (USA Today)

Credit Threshold Eases for Car Lessees and Borrowers

Last month’s car sales were the second best of any month since September 2008, according to Autodata. That startling fact is partly due to the recovery of the automotive financing industry. 

Nearly 89% of car shoppers borrow money or lease their vehicles instead of paying with cash, according to CNW Marketing Research. When the money dried up during the recession, many people were left without a way to buy a car. During this time, big lenders started to restrict borrowing. GMAC limited its lending to consumers whose credit scores were higher than 700, which is considered a good score. But now, many lenders seem to be turning the corner, which is great if your credit is less than stellar. 

Ally Bank — the preferred lender for General Motors, Chrysler, Saab and Suzuki dealerships — has nearly doubled the amount of loans it has issued this year. The bank financed nearly 82% of all the vehicles sold at 5,000 GM and Chrysler dealerships in the U.S. this year, and Ally says it is ready to ease credit for leasing. 

Ally has lowered the FICO score requirement for Chrysler lessees from 660 to a 620, according to Automotive News. A score of 620 is considered the upper limit of the subprime market, which is another way of saying less than perfect credit. That’s a stark change from last year, when the Automotive Lease Guide reported that a fair to poor credit score meant it was probably “difficult if not impossible” to find a lease. 

GM Looks to Get Back Into Financing

One of GM’s most profitable businesses was its financing arm, GMAC. Its success was why it was one of the assets the company sold to help stave off bankruptcy in 2006. As everyone knows, that wasn’t enough. Now that GM is out of bankruptcy and seeing recent sales success, it's interested in reacquiring GMAC, now called Ally, or starting a new financing company.

Many automakers have their own financing arms and this is nothing out of the ordinary. In fact, the move to re-establish a financing company may be a clear sign that GM is truly returning to stability.

GM eyes return to car loan business (Detroit Free Press)

Chrysler Returns to Leasing for 2010 Models

After a hiatus that covered the 2009 model year, Chrysler will return to leasing for all 2010 Chrysler, Dodge and Jeep vehicles. New 2009 vehicles still on dealer lots will get 0% financing for 72 months.

GMAC Financial is offering both the leasing and financing deals for Chrysler. The company discontinued the leasing program last summer when sky-high gas prices forced a shift in the car market and permanently injured the company, which eventually had to file for bankruptcy.

Chrysler’s lease deals go into effect Thursday.