The brand's current leasing rate is half of what it needs to be.
Toyota is on a mission to find ways to convince US customers to lease their new vehicles instead of buying them, as lease rates are currently about half of what they should be. Why is this a problem for Toyota? Because customers who lease are automatically forced to come back in three or four years to lease another vehicle. Those who buy typically keep their Toyotas for far longer.
Speaking to Automotive News, Toyota's North American chief David Christ acknowledged it will take creativity to solve this problem as new vehicle inventory and reduced incentives continue.
Both make leasing a less attractive option.
"Toyota's leasing percentage right now is about 14 percent [of total sales], and it would normally be [near] 30 percent, so that's 15 percent of business which is now in a retail contract instead of a lease," Christ said. "That's a concern, because a customer on a lease cycle is normally back in three years, and it's an automatic opportunity to re-lease them a new car or sell them a new car."
Because leasing is a core part of the industry's business model, Toyota can't afford to let the current trend continue. But there's another critical reason leasing is a must: it consistently creates a precious supply of certified pre-owned vehicles.
Late model, low-mileage examples of the Toyota RAV4, Tacoma, and Highlander fly off dealer lots quickly. Leasing terms can also be extended if inventory is tight, thus still allowing dealers to make money when it doesn't have enough new vehicles to sell.
However, Christ does not believe leasing rates will fully return to pre-pandemic levels until two things happen: restocked inventory and when demand does not exceed supply.
"To me, the leasing change is more about the dynamic of the marketplace and the change in transaction price than it is about whether customers really want to lease or not," he added. Christ did not specify how he intends to up those lease rates, but time is on Toyota's side because demand remains high.
But eventually, that'll wear off, probably around mid-decade by Toyota's estimate. This gives the carmaker time to develop strategies, modified leasing models, and ways to market them that are more attractive than buying.