Thai Wright | Bloomberg | Getty Images
If you’re nearing the end of your car lease, don’t assume that another option is your best option this time.
While many consumers move from one lease to another — which puts them in a new car every few years — the pandemic has turned the auto industry on its head. This generally means the calculus has changed as to whether another lease makes sense, experts say.
For starters, “the ability to quickly get to the car you want isn’t there,” said Pat Ryan, founder and CEO of car shopping app CoPilot. “You might wait three to six months for that.”
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An ongoing global shortage of microchips – key components needed to power cars today – that began last year continues to hamper manufacturers’ production of new cars, driving up supply demand.
The average time a new vehicle sits on a dealer’s lot before it is sold is 26 days, according to forecasts from JD Power and LMC Automotive. Two years ago – before the epidemic broke out – it was 62 days. An estimated 54% of the vehicles were sold out within 10 days of reaching dealerships in October.
This supply imbalance has pushed the average amount paid for a new car to about $44,000, according to JD Power/LMC forecasts. This is 19.3% higher than in October 2020, when the average transaction price was $36,887.
Part of the reason for recording standard transaction prices is that manufacturers have lowered their incentives because, in general, they don’t need to offer big car sales discounts right now.
Consumer demand has also extended to the used car market, which has led to higher values there as well. For vehicles 1 to 3 years old, the average retail price is $38,974, a 46% increase from $26,627 two years ago, according to CoPilot.
The good news for renters is that your current car may be worth more than you expected – and give you a chance to cash in on the difference.
In other words, you may be able to buy your lease for less than you would have paid for the car if it was sitting on a dealer’s plot at the moment. This is because the residual value – the value of the car at the end of the lease – was determined when you signed the lease several years ago.
“I paid for consumption that didn’t happen,” Ryan said. “You win but if you turn it in, you give the merchant that profit.”
Plus, the bells and whistles you have on your current car may not be on the next one, he said. Due to a lack of chips, some features — such as driver assistance and monitoring systems, or blind spot monitoring — have been suspended by some automakers.
“You might not get new features in the next car or even the features you currently have,” Ryan said.
With car prices soaring to record levels, he said, the next lease will reflect those increased values.
“What we are asking our members to do is buy and wait,” Ryan said, adding that when stocks eventually return to normal levels, you can generally expect prices to return to normal.