Leasing Sees Growth in Compacts, Pickups

According to J.D. Power and Associates, compact cars had a penetration rate of 2 percent a year ago in February and that number shot up to 10 percent last month. That statistic could help the manufacturers weather higher fuel prices in an attempt to sell well north of 12 million vehicles this year.

In the past, compact cars weren't a viable market for leasing for a variety of reasons. The most compelling was automakers focused their energies elsewhere on more profitable SUVs and luxury vehicles.

It made sense to lease the SUVs and luxury vehicles because they had high residual values that made them attractive to the certified pre-owned market when they came off lease. Also, leasing made it affordable for consumers to drive the vehicles off the lot. Luxury premium convertibles (think Porsche) have a lease rate of 56 percent.

Also, leasing is a prime tool for businesses. It's impractical for many of them to purchase vehicles for executives for depreciation and other accounting reasons. So, the executives get reimbursed for their leases if the companies don't make direct arrangements.

But now the compact market has become white hot for manufacturers. They've discovered with add-ons like navigation systems and other electronics that these small cars can actually turn a profit.

Plus, there is this matter of a little lingering thing called a bad economy. That, too, is making it more difficult for people to afford new car payments. Leasing traditionally has lower monthly payments because you're really only paying for 50 percent of the vehicle spread out over the 36 to 42 months you drive it.

Pickup leasing jumped to 7 percent in February, which is a 38 percent growth over February 2010. Manufacturers want to see growth in pickup leasing because they are still among the highest volume vehicles in terms of sales. Pickup owners, though, in the past were more reluctant to enter the leasing market because they tended to hold onto their vehicles for longer periods.

Now that, too, is changing as leasing offers an affordable entry into a higher level of truck. You can get a whole lot more truck for the same monthly payment. The only concern is wear and tear can be greater than on a sedan or SUV. Take into consideration your use before leasing because repair costs could be high at the end of lease if the pickup fails inspection.

Watch for increases in leasing for pickups and compacts to be a factor in the growth in new vehicle sales in 2011.