The attacks in the US on 11 September 2001 had a significant impact on vehicle leasing, contributing to a 40% decline in new lease volume, according to the Association of Consumer Vehicle Lessors.

In addition to the substantial reduction in volume, the industry continued to feel the effects of historically high residual value losses.

The most significant leasing change is the decline in new leases of 40% from 2000 to 2001 for retail lessors who reported in both years. Since the decline in new vehicle sales was only 1.3%, the decline was the result of lower leasing penetration rather than lower overall sales.

There are three causes for this drop. First, the zero percent promotional retail rates provided by the manufacturers after September 2001 attracted many customers to purchase financing over leasing. Second, the reduction in leasing residual forecasts substantially increased many lease monthly payments, reducing the deals’ attractiveness. Finally, volume dropped due to fewer manufacturer lease promotions, and the retraction of some bank lessor programmes by withdrawing from some states.

The weighted average length of new vehicle leases increased by almost three months in 2001 to 42.1 months compared to 39.3 months in 2000, according to the ACVL study. Bank lessors had an average term of 53 months, compared to a weighted average of 38 months for manufacturer captive finance companies. This reflects both the attempt to gain more affordability through longer terms and the recognition of the higher residual value risks of shorter term leases.

Looking back four years to 1997, the average lease length was just over 32 months and the 24- and 36-month terms were dominant, according to the ACVL, whose members write four out of five consumer vehicle leases in the United States each year.

“In the last four years, the market has almost totally switched away from 24-month leases. The manufacturer captive lessors’ average term was over 41 months (compared to their weighted average of 38.1 months), indicating that most captives are writing almost as many 48-month leases as 36-month leases. For banks, the average term of 53 months indicates that the 60-month term has surpassed the 48-month term in popularity,” said ACVL president Jesse Bragg.

Security deposits are also required less frequently than a few years ago, the ACVL survey showed. What was a universal requirement only a few years ago is now the exception rather than the rule. In 2001, security deposits were required on just 35% of new leases written by ACVL members. This change was driven by finance company lease loyalty initiatives and an effort to offset the competitive impact of the low-rate retail financing programmes.

After experiencing very large residual losses in 1999 and 2000, lessors had hoped that the worst was over. However, there was a 10% increase in the weighted average residual loss in 2001 to $2,429 compared to 2000. For the average lessor, the average end-of-term loss on returned vehicles rose to a historic high of $2,661.

“Now more than ever, it’s important that consumers be informed about the benefits and responsibilities of leasing before they decide whether to lease or buy,” Bragg added.