The down payment is one of the major concerns customers face when deciding to sign a new car lease. Most advertising focuses on the monthly, bi-weekly or weekly payment, leaving the down payment to the small print and additional conditions. Then, once customers go through the dealerships’ sales funnel and sit with sales staff, it may show up as a blocker for the sale to occur. The following graphic shows the percentage of customers who made a downpayment vs the vehicle make.
Figure 8: Percentage of customers that lease with a down payment, among the most popular vehicle brands in Canada. The list includes High-end vehicles (BMW, Mercedes-Benz, Audi, Acura, Mini, Infiniti, Lexus, Cadillac, Buick, Volvo, Land Rover, Lincoln, Jaguar & Porsche) and popular ones (Toyota, Honda, Volkswagen, Mazda, Ford, Nissan, Subaru, Hyundai, Chevrolet, Kia, Dodge, Jeep, GMC, Mitsubishi & Chrysler)
- Only a fraction of all leasing customers (about one every 5) made an initial down payment. (See Figure 8)
- High-end vehicle customers tend to be up to 3X times more likely to make a down payment than customers of popular brands. (See Figure 8)
- For most popular brands, about one every six customers tend to make a down payment. (See Figure 8)
Figure 9: 2016-2020 Average down payment among customers who did one at the signing. $0 down deals are excluded from this math to avoid affecting the average.
- The average down payment, when analyzed across all available brands, averages CA$538. Proportionally, high-end vehicles are above this average while the most popular ones are under it. (See Figure 9)
- The specific case of Ford, GMC & Dodge is above average due to the popularity of pickup truck leases for businesses. (See Figure 9)
- By excluding the top side of the (see the following graph) the average down payment for Toyota, Honda, Volkswagen, Mazda, Ford, Nissan, Subaru, Hyundai, Chevrolet, Kia, Dodge, Jeep, GMC, Mitsubishi & Chrysler falls to CA$378. This amount strikes pretty close to the average monthly payment across the same brands. (See Figure 10)
- High-end vehicles average CA$ 1,297 as a down payment. (See Figure 12)
Figure 10: 2016-2020 Average down payment among most popular vehicle brands in Canada: Toyota, Honda, Volkswagen, Mazda, Ford, Nissan, Subaru, Hyundai, Chevrolet, Kia, Dodge, Jeep, GMC, Mitsubishi & Chrysler.
- Manufacturers with more inventory of compact, mid-size and small cars tend to have a lower average down payment due to the volume of sales of those vehicles. This trend behaves proportionally to the respective lower MSRP of those models. (See Figure 10)
- The average down payment amount for regular brands has paced with inflation over the past 15 years, showing no trend of consumers adding more or less than the individual price variation. (See Figure 11)
Figure 11: Down payment average variation and monthly payment average for Toyota, Honda, Volkswagen, Mazda, Ford, Nissan, Subaru, Hyundai, Chevrolet, Kia, Dodge, Jeep, GMC, Mitsubishi & Chrysler.
Figure 12: 2016-2020 Average down payment among high-end vehicle brands in Canada: BMW, Mercedes-Benz, Audi, Acura, Mini, Infiniti, Lexus, Cadillac, Buick, Volvo, Land Rover, Lincoln, Jaguar & Porsche.
Figure 13: Down payment average variation and monthly payment average for BMW, Mercedes-Benz, Audi, Acura, Mini, Infiniti, Lexus, Cadillac, Buick, Volvo, Land Rover, Lincoln, Jaguar & Porsche.
Implications
- Down payments present no obvious direct benefits to customers and neither their individual cash flows. The purpose of reducing the regular lease payment has a slight psychological value that is very arbitrary.
- Over time, customers haven’t shown any preference for increasing/decreasing the amount of down payment done at signing.
- Only about 16% of leasing customers do down payment for the most popular brands in the market. The amount more than doubles for high-end vehicles to about 36% of customers.
This article is part of the 2021 Study done by LeaseCosts Canada Inc. that included over 23,000 lease contracts from all over Canada.
