Leasing Vehicles: How the Market Has Evolved and Why Leasing Still Matters

Leasing shrank after the late-1990s peak but has stayed relevant as manufacturers and lenders use leases to manage depreciation risk, especially for luxury models and EVs. Pandemic-related used-car price swings temporarily altered residuals, making leasing more appealing for a spell. Today leases rely on more conservative residual assumptions, improved remarketing (CPO programs and digital channels), and segment-specific strategies. Consumers should weigh residuals, finance rates, mileage, and end-of-lease options to judge if leasing is the right choice.

Leasing vehicles remains an important option for many buyers. The basic appeal - lower monthly payments, newer cars more often, and predictable end-of-term options - has not changed. What has changed are the forces that determine lease pricing and how manufacturers, banks, and dealers manage off-lease vehicles.

A brief history and recent shifts

Leasing peaked in the late 1990s (about 25% of passenger-vehicle sales in 1999) and then fell in the early 2000s as residual-value assumptions proved optimistic. The industry retrenched, building lease deals on more conservative projections and improving remarketing practices.

The 2020s brought fresh volatility. Used-vehicle prices surged in 2020-21 (driven by pandemic supply disruptions), which temporarily boosted residual values and made leasing more attractive. As supply recovered in 2022-23, residuals normalized again, shifting lease pricing and lessor strategies .

Why leasing can make sense today

• Residual values and interest rates drive monthly lease payments. When residuals are strong and finance rates reasonable, leases can lower monthly cost of driving a newer vehicle.

• Manufacturers and captive finance arms tailor lease programs for specific models - luxury cars and many electric vehicles (EVs) are commonly leased because leasing helps manage depreciation and technology risk.

• Certified pre-owned (CPO) programs, digital remarketing channels and tighter reconditioning standards have improved resale outcomes for off-lease vehicles.

Who benefits and who decides

Dealers benefit when reassigned off-lease vehicles stay in their inventory or return as re-leases: they preserve customer relationships, generate finance-and-insurance (F&I) revenue, and reduce exposure to wholesale market swings. Banks and independent lessors sometimes push lease-end purchases - dealers and manufacturer captives may instead prefer to cycle customers into new leases to capture new-vehicle profits.

Leasing rates vary by region and segment. Urban and Northeast markets historically show higher lease uptake; luxury brands still rely heavily on leases for a large share of their sales ¹.

The outlook

Leasing is unlikely to return to unchecked growth based on subsidized deals, but it will remain a stable part of the market. Expect continued use of leasing as a risk-management tool for EVs and high-tech models, broader use of re-leasing where remarketing economics allow, and more digital lease-end processes for consumers.

If you plan to lease, compare money factors, residual values, mileage allowances, and end-of-lease options. Those details determine whether a lease delivers the expected savings and flexibility.

1. Confirm current national vehicle lease penetration percentage for 2024/2025.
2. Verify typical lease penetration for luxury vehicle segment (e.g., whether ~60% still applies).
3. Validate the timing and magnitude of pandemic-driven used-vehicle price spikes and normalization (2020-2023 timeline).