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Early Lease Terminations Balloon, Says CNW

December 22, 2009

Terminating a lease earlier than its contractual length has skyrocketed in the last two years, growing from a typical 15 to 16 percent to more than 21 percent in 2009, reports CNW Market Research.

Not only are early terminations rising, the Bandon, Ore.-based market research firm found, they’re occurring significantly earlier in the contract period. For example, CNW found that in 2000, early terminations occurred about four months prior to the actual lease end. In 2009, it was more than 14 months, up from 12 months in 2008.

Twenty-four percent of those surveyed by CNW indicated that “change in job status” was the primary reason for early terminations. In follow-up surveys, more than half of those job changes were related to either losing a position or a roll back in pay or commissions.

The second most frequently listed reason had to do with lease payments being too high, which the market research firm says indicates that leasing is “hard-wired into the economic recession.”

This link, however, has also had an interesting impact on another area of leasing, CNW noted. While “original lease too long” was the most frequently mentioned complaint in 2005 and 2006, fewer lessees listed that as a complaint in recent surveys.

In leasing’s heyday, 24-month leases were common and 35 months was the average of all leases. In the latest data, the average lease runs in the 48- to 50-month range, in part reflecting the longer term contracts written by independent lease companies and the attrition of some major captives from leasing.

CNW also noted that lessees seemed to accept these longer terms in order to keep the monthly payment as low as possible, and the type of vehicle leased at the higher end of the price spectrum. However, the research firm found that this acceptance by consumers didn’t equate to increased satisfaction with leases.

“After six years of steadily rising lease-satisfaction scores, ’07 and ’09 saw year-over-year declines,” the firm wrote in its December newsletter. “CNW’s own data has long shown that the shorter the lease, the more positive the lessee is about leasing, the vehicle leased and the manufacturer.”

Despite the struggles leasing has had throughout the economic downturn, CNW believes leasing still represents the perfect financing alternative for consumers and small businesses. It added that while it may never reach the 37-percent high of the mid- to late-1990s, leasing is likely to hit the balanced “water level” in the 25- to 27-percent range.

“Subvented leases are once again being offered by many manufacturers,” wrote CNW. “Short term, low payment is increasingly common and could lead to another financing disaster as it did at the turn of the century when the industry was short nearly $10 billion in residual value projections vs. actual off-lease vehicle value.

“On the positive side, off-lease vehicles feed CPO; flatten peaks and valleys in month-to-month sales; improve inventory control at dealerships; and generally allow automakers to track customers more closely, thus cutting market costs,” the firm added. “In a steady and reasoned hand, leasing is a significant positive for automakers.”

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