New vehicle sales are taking off. We have not seen these levels for many years. This is great for the economy, but… (There seems to always be a “but”.) People are trading up to new vehicles using leases.
Leases are up by 12.5 percent this year, according to Experian Auto-motive. They now account for 27.5 percent of all vehicles financed. The car makers love to use leases, and they make leases very attractive by keeping monthly payments relatively low.
Until recently, the average age of vehicles in service has kept going up. People were keeping their cars longer and spending more on maintenance. What happens when one of these oldies but goodies is replaced with a brand spanking new vehicle? The aftermarket loses big time. They are hit by a double whammy: fewer repairs on the old cars, and little business from new vehicles. Studies show that new car owners take their vehicles back to the dealers for services, especially while the warranty is in force. Combining this with the fact that newer cars require much less service than older ones, because of increased reliability and having longer recommended service intervals, and independents suffer.
The economy benefits, Wall Street goes up, car-makers and their dealers make out, but the aftermarket is suffering. Unfortunately, it looks like it’s going to get worse. Now some big name brands are including a couple years of free service with their new cars. And the promotional leases are designed to bring buyers back to the showrooms in three years to trade in their leased vehicles on new ones, causing the vicious cycle to repeat itself.