Without a doubt, millions of people in the U.S. and all over the world consider leasing as a way of easing their financial burdens.
That’s because it helps them spread payments over a couple of years or more instead of just paying it all at once.
This article, however, aims to look at this subject from the lessor’s perspective by determining whether it’s a profitable business idea.
Let’s get into it, shall we?
Here’s the Short Answer to Whether Car Leasing Is a Profitable Business Idea:
Car leasing is definitely a profitable business idea, considering its structure. Customers within the lease framework pay a certain amount monthly for 2-4 years, after which the car reverts to the lessor. It doesn’t get more lucrative than that.
How Lucrative Is the Car Leasing Industry?
The car leasing industry is a very massive market with millions of people invested in it all over the world.
As of 2021, experts valued the industry at 75 billion dollars, with projections for later years indicating an auspicious future for the industry.
Can You Negotiate Better Prices With Car Leasing Companies?
As with any business enterprise, you can absolutely negotiate prices with car leasing companies. However, certain techniques and mannerisms can play a huge role in whether or not your negotiation will be successful.
Below are some tips that can help when negotiating with car leasing companies:
1. Get Acquainted With Lease Terms
If you are new to the leasing world, you might get lost when certain terminologies are thrown in your face, and that might affect your ability to negotiate. We’ve curated a list of lease jargons you should at least know before beginning your negotiation:
- Residual Value: This basically means the expected value of the car in the future.
- Buyout Price: The buyout price is the amount the dealer expects you to pay if you choose to buy the car at the end of the lease.
- Capitalized Cost: This is the car’s sales price, i.e. the amount you’d pay if you were buying instead. An alternative term for that is “market value”.
- Acquisition Fee: The acquisition fee is the fee that essentially created the lease and set it in motion.
- Disposition Fee: This fee covers cleaning and maintenance costs of the car that is the subject of the lease.
2. Compare Different Lease Deals
Before setting out to lease a car, the first thing you should actually do is check out lease deals from different dealerships and manufacturers.
Thanks to technology and the Internet, you can do that on your phone and from the comfort of your house.
You can then make a list of the most competitive deals and call the most competitive ones for more information.
3. Begin the Negotiation
The first step to starting the negotiation is visiting the dealership(s) during their open hours, preferably on a bright early morning. Do a test drive of your choice car, if you want, and start negotiating.
We did some research and found that car leasing companies are more inclined to accepting negotiations for the following:
Mileage Limit: One thing about lease agreements is there will always be mileage restrictions. However, if you often drive long-distance and you can’t keep up with the mileage limit, you can request something better at a discounted rate.
Buyout Price: If you are looking to buy the car after the lease expires, you can make a commitment and have them slash some bucks off the buyout price. Note that the companies will be more inclined to do this when you state your buyout intentions clearly and firmly.
Disposition Fee: The disposition fee is an added cost that leases have to bear. However, if you have no plans of returning or swapping the car after the lease, you can tell them that. That’d help soften the grounds and increase your chances of successfully negotiating a reduced disposition fee.
Interest Rate: You can also get the leasing company to reduce the interest rate for the lease. To have a shot at this, though, you’ll need to have an outstanding credit score.
Should I Start a Car Leasing Company Today?
If you were to start a car leasing company today, it would be an auspicious move as long as you have the financial wherewithal.
In fact, we dare to say you’d be waltzing into a very profitable business if you play your cards right.
Below are some neutral facts to be aware of:
- The car leasing industry is a multi-billion dollar industry with the value expected to reach over $120 billion by the next decade.
- According to Statista, a quarter of new cars in America are leased. That is huge and experts expect the figures to increase over the next decade.
- The percentage of leased cars has declined in the last one year due to the inventory shortage affecting the auto industry. However, the situation is a lot better and experts predict an end to the shortage soon.
- Big businesses across the world are increasingly ditching outright purchases for the more economical leasing option.
- Starting an auto leasing company may require getting state licenses amongst some other bureaucratic processes.
Do Car Leasing Companies Make More Money Than Rental Companies?
Car leasing companies are, in a way, similar to rental companies, seeing as they both supply cars for a specific period at an agreed price. One difference, however, is, car leasing deals involve many more agreements and concessions and the tenures are much longer.
In terms of financial value on the global scale, the car rental industry takes the edge with a $92.02 billion valuation, as at 2022. The car leasing industry, however, managed a global market value of $75 billion in 2021, according to Mordor Intelligence.
Industry data also suggests an expected value of $139.95 billion in 2027 for the car rental industry and $123.87 billion for the car leasing industry.
On a general scale, car leasing companies are very much behind car rental companies in terms of revenue. Also, the forecast by experts as shown above means that will not be changing soon.
Both industries are however growing at massive rates and are fertile grounds for intending stakeholders.
How Does the Future Look for Car Leasing Companies?
From the financial angle, the future looks absolutely promising for car leasing companies. Experts estimate about $120 billion in the total valuation of the car leasing industry by 2027.
Also, there is an increase in the popularity of electric vehicles across the world. This increasing popularity will impact the leasing industry because most customers prefer to lease sophisticated electric vehicles.
In addition, more businesses are opting for leasing their business cars rather than buying them, and this change in trajectory will strengthen the lease market in the coming years.
Summarily, the future is refulgent for car leasing companies and the entire automobile industry. That explains why many publications now call leasing the “future of car usership. “