Summary
- Tighter inventories let automakers rely less on incentives
- Dealers say pricier renewals are weakening customer loyalty and return traffic
- Edmunds says fewer off-lease returns helped lift three-year-old used-car prices 43%
DETROIT, (Reuters) – Vehicle leasing has declined in the United States in recent years, curbing what has long been a preferred route to new wheels for many car shoppers.
Before the pandemic, leasing accounted for around 30% of the U.S. new-vehicle market, according to research firm JD Power. That percentage fell to 17% during post-pandemic car shortages, and leasing has still not fully recovered: In the first half of 2026, leases accounted for 23% of new car deals.
A big reason for the decline: Automakers have gotten stingier, unwilling to offer low monthly rates that historically enticed buyers to lease. Shoppers returning at the end of their term often are presented with monthly rates on their next lease that are a few hundred dollars higher.
“The customer still has a desire to lease,” said David Ferraez, a New Jersey General Motors dealer. “The big challenge is getting the customer to accept the much higher payment.”
The decline in leasing has contributed to a broader affordability crunch for U.S. car shoppers, and crimped the flow of returning customers to dealerships. The lack of cheap leases has pushed some buyers to instead stretch their financing terms, sometimes to as long as seven years.
CARMAKERS PULL BACK ON CHEAP LEASES
When buyers lease a car, they make monthly payments, typically over three years, and at the end of that term can purchase the vehicle at a predetermined resale price. If not, the lender – often the automaker’s finance company – takes the car back.
Leasing typically gives buyers lower monthly payments than on a financed purchase. For automakers, leases are generally less profitable, but they help boost new-vehicle deliveries and keep a steady stream of buyers coming back.
Leasing is especially popular among luxury car buyers who like new features and designs.
But automakers learned a lesson amid a vehicle-availability crunch from 2021 to 2023, which stemmed from a computer-chip shortage: Keeping dealer inventories tighter curbs the need for discounts and other incentives, including lease deals.
That new approach, along with higher interest rates in recent years, means lease customers are paying more.
Leases still offer lower monthly payments – the average is about $650 a month compared with $800 to finance a new vehicle, according to JD Power.
But “they’re still nowhere near as good as they used to be,” said Ivan Drury, director of insights at car-shopping site Edmunds.
The leasing decline is also partly why 23% of new-vehicle purchases in the second quarter included 84-month (seven-year) loans, according to Edmunds data.
Honda has recorded an increase in 84-month purchase loans. The automaker’s overall lease rate remains higher than the industry average at 26% in the second quarter, but is below pre-pandemic figures.
“Leasing used to be a lower price point. That may not always be the case anymore,” said Lance Woelfer, Honda’s vice president of automobile sales.
LEASING DECLINE DENTS USED-CAR MARKET
The drop in leasing has been frustrating for some dealers, who generally like leasing because the three-year terms ensure a steady flow of returning customers.
Dealers say customers cringe when they see a lease payment offer that costs $100 to $200 more per month than what they were paying.
At John Luciano’s Volkswagen dealership in Amarillo, Texas, leasing represents about 30% of his new-vehicle business — down from 65% in 2022. He said customers are resisting the higher payments. For example, an Atlas SUV costs $130 more per month to lease than a couple of years ago.
“It creates a lot of defection,” Luciano, the dealership owner, said.
A Volkswagen spokesperson said, “The brand remains fully committed to leasing and understands the importance it has on loyalty and future sales of our products.”
The drop in leasing also crimped a key supply source for the used-car market, because vehicles returned after a lease typically move to a dealer’s pre-owned car lot. Used cars have been in short supply since the pandemic, driving up prices.
The average selling price of a three-year-old used vehicle has increased by 43% since before the pandemic, as off-lease volume has declined, according to Edmunds data.
“If we look at how expensive used vehicles are, it is in part because there are so few leases,” Edmunds’ Drury said.
Reporting by Kalea Hall; editing by Mike Colias and Rod Nickel
