By on January 27, 2014

Car Key with Leasing Tag on White

In 2013, 3.2 million new cars and light trucks were leased in the U.S., an almost threefold increase from 2009. The 2014 Manheim Used Car Report, produced by one of the larger used vehicle auction companies, says that the auto industry will have to change the way it remarkets cars if it is going to successfully handle the increased volume of off-lease vehicles.

According to Automotive Newsthe Manheim report also warns that dealers who take in off-lease vehicles on behalf of lessors (so called ‘grounding’ dealers, “will not be willing or able to acquire the same large share of off-lease units that they have in recent years.”

The previous time when large numbers of off-lease cars and trucks went on sale was in 2002, and the glut of off-lease vehicles lowered residual values and used car prices then. This time, though, the increased number of off-lease vehicles this year will find a more favorable market. Used car prices are currently relatively high and “residual adjustments” likely will be not be large, Manheim says.

One thing that may make reselling those vehicles easier will be the growth of certified pre-owned programs. In 2002, the CPO market was less than 40% of the size of the total off-lease volume. The report says that today’s certified-used market is 23% larger than the total off-lease volume, so the CPO market today can absorb a much larger portion of off-lease vehicles.

Still,going forward into 2015 and 2016, lessors need to improve their remarketing procedures and expose off-lease vehicles to as many potential buyers as possible.

Another complicating factor is that sales of new cars and light trucks to rental companies went up 1% in 2013, which means that a year or two from now, those rental vehicles will end up on the used market. However, while the 1.6 million units sold for rental was the highest rental fleet volume since 2007, it’s still far below the 2.1 million rental units that were sold in 2005 and 2006.

The domestic American automakers decreased their market share for rental fleet sales for the third year in a row, now at under 65%. By comparison, Hyundai’s sales to rental companies rose 73% to 118,000 units, the biggest increase in rental fleet sales among all automakers.

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64 Comments on “Off-Lease Vehicles Set to Flood Used Car Market Along With More Former Rentals...”


  • avatar

    Buying a certified pre-owned off-lease vehicle is the easiest way to get a vehicle you want, that you can’t really afford new, without taking the massive depreciation nose dive that the first owner did – which coincidentally made it affordable for you!

    • 0 avatar
      jmo

      Depreciation is mostly linear these days. The only way you can find a “massive depreciation nose dive” is if you insist on using MSRP vs. the actual price paid.

      • 0 avatar
        ellomdian

        Sure, for commodity vehicles. Anything that costs more then ~$40k new still has a nosedive for the exclusivity of being the first ass in the seat, and the higher you go, the harder it hits.

        Bigtruck is still correct if “the vehicle you want” had a premium of some kind, like being a “Luxury” or “Sports” car. If you wanted a 4-door and really didn’t care what kind, the post-lease market has very much homogenized – but the original owner bought because of high residuals, not because the car was “special.”

      • 0 avatar
        ect

        That was my experience when we were car shopping a year ago. The B-Class we wanted was about $38,000 new. 3-year old (previous generation) models were around $24,000, 4-year-olds around $18-19,000.

        Our previous 2 cars were kept for 8 and 9 years. The way it looked to me, my capital cost to buy new and hold it 8 years, vs. buying a 4-year old model, having that for 4 years and then repeating, would be about the same.

        I’d also expect my operating costs to be lower by buying new, as one pays for more repairs during years 5-8 of a car’s life than during years 1-4. And I can be sure that it’s well taken care of during years 1-4.

    • 0 avatar
      mkirk

      The way the used car market has been of late has made the potential difference minimal on many models. My Frontier was a matter of a few hundred bucks new vs used after all the rebates and haggling came into play. I haggled equally on the used one and it just wasn’t worth it.

    • 0 avatar
      krhodes1

      I would lease a new car before I bought a 2-3yo used car. If I am paying REAL money for a car, I want exactly the car I want, not some compromise.

      The only way to buy used is to buy FULLY depreciated for pocket money. My $5.5K Range Rover was a great deal, a 2yo BMW is not. What issues the Rover had were very easily fixed, I am quite sure I could turn a profit on it selling it now.

      As for new car depreciation, I paid ~$39K for my ’11 3-series wagon. Edmund’s says it is worth ~$27K 2.5yrs and 26K later. $12K for the best 2.5 years of a cars life is not a terrible deal, IMHO (and I got to drive it around Europe). Of course looking at the ~$45K MSRP it looks a lot worse. I plan to keep it so long that depreciation is meaningless, since BMW won’t sell me another one like it.

      • 0 avatar
        highdesertcat

        “I would lease a new car before I bought a 2-3yo used car.”

        That is a smart move since most program cars (lease and/or fleet) never get serviced for the duration of the lease or fleet use.

        Things were so bad that the OEMs started including FREE service and maintenance with the cars for the length length of the lease, i.e. 3 years.

        Most program cars don’t see their first oil and filter change until the retailer takes the program car in and preps it for resale.

        • 0 avatar
          Kyree S. Williams

          Yes, BMW has free maintenance on its lease and purchase cars, and so does Cadillac. I think someone else offers free maintenance, too (Volkswagen? Volvo?). But isn’t it against the rental agreement to not have the car serviced…especially if the maintenance is complimentary?

  • avatar
    hreardon

    The CPO programs are an excellent option. I have several friends who, while able to afford new, will only do CPO due to the savings. The German CPO programs are generally excellent ways to knock an easy $10k off the sticker. Take a look at F30 3-series or B8 A4s for examples of some great deals you can find.

  • avatar
    FractureCritical

    I’ve never seen CPO’s as a good deal. By and large, the asking prices on these cars aren’t that far below what a good negotiatior can get off of a new car. For som reason, the dealers (at least the ones I’ve talked to) are less willing to budge on the CPO car prices.
    My random hypothesis on the situation is taht CPO’s are a better deal for those with less than sterling credit scores who can’t swing the financing on the new car.

    Interesting note on the residuals. I’ve seen more than a few leases end with relatively low residuals (50%-55% on luxury cars) and then CPO for as much as 80%-90% of MSRP. That’s gotta be just pure gravy for the automakers. No wonder the classic convention of “msutb e able to move X00k units per year to survive” doesn’t hold true for makes like BMW; they get to sell most of thier cars twice!

    • 0 avatar
      bball40dtw

      It really depends on the vehicle. My wife and I purchased a CPO Lincoln MKT in August. The original MSRP was $59K. I’m sure with discounts and rebates We could have purchased it new for around $50K. Instead, I found some CPO examples, that were all in the $27-30K range. The first dealer to sell me one under $25K was going to be the winner. It took me almost three months, but we ended up with our car for less than $25K out the door.

      • 0 avatar
        Firestorm 500

        How many miles?

        • 0 avatar
          bball40dtw

          48K. I was a good deal based on what the Flex and MKT were going for with the 3.5EB. With used Explorer Sports our there now, prices may have dropped even more. I sat on it awhile. I couldn’t get anyone else to go under 26.5K. I originally didn’t want black on black, but that’s what I ended up with because of the price.

          If someone was looking for a used big Ford people carrier/CUV with a bunch of HP, I’d recommend the MKT over the Flex/Explorer Sport because they can be cheaper with a better warranty. You just have to put up with the looks…

          • 0 avatar
            Volt 230

            How about a non-cpo used car and you just buy an extended warranty to cover it?

          • 0 avatar
            bball40dtw

            Volt-

            Its something I would do, but it depends on price of the warranty. You have to shop around for the best price.

          • 0 avatar
            olivebranch2006

            Hi Bball,

            I really liked how the MKT drove when I test drove a ecoboost awd 2013 model. The power, the space, comfort, most of all the smooth active-dampened suspension. Would be magic for my Wife’s bad back! A few questions, if you may:
            1. How is the suspension holding up 50,000 miles in?
            2. How is reliability so far?
            3. I have read glitches and crashes of FordMyTouch/LincolnMyTouch. How is it for you?
            4. Did you notice the interior creaking or otherwise not holding up well?

            Thanks!

          • 0 avatar
            bball40dtw

            olivebranch-

            1. The suspension is great. We use the vehicle to drive from the Detroit area to Northern Michigan often. I have no complaints. The long (120″) wheelbase along with other tech makes it smoother than almost everything else out there. I’ve driven new ones, and ours seems the same.

            2. No issues with reliability so far. I elected to have the spark plugs upgraded and have the ECU flashed accordingly. Ford changed the plugs after 2011. The new ones work better and last longer. That has been the only service besides an oil change.

            3. The 2010 doesn’t have MFT/MLT. However, my other vehicle has MFT. I haven’t had a glitch since the last update, which was in early 2013. MFT has come along way since 2011. I wouldn’t avoid a MFT car, but I know many here don’t like it.

            4. The panoramic moonroof on the 2010s had a TSB for creaking. Mine had been fixed before I purchased it. I have experienced basically no creaks or rattles. My wife would let me know if she heard something too. The faux wood above the passenger side glove box is the worst piece of trim on the car. It doesn’t rattle, creak, or fall off though. I just don’t like the look of it.

            All and all, I really like the MKT. You will be hard pressed to find a better highway crusier, especially in CUV/SUV form. My wife loves the MKT even more than I do. I would have bought a Q7 or X5 if she wanted to, but the MKT is faster and more comfortable than either (The M version of the X5 as well as the new V8TT X5 are faster).

      • 0 avatar
        FreedMike

        Now that’s EPIC depreciation. Wow.

        • 0 avatar
          bball40dtw

          That’s what happens when you are Lincoln. Before the 2013 model year, you only had to split 3.5TT sales with the Ford Flex. It gave you something premium over the more popular Explorer. Then….Ford realized they could sell Explorers for almost the same price as MKTs. The Explorer Sport even moved more units than the MKT while being more profitable. Sad Lincoln.

          • 0 avatar
            olivebranch2006

            Bball,

            Thanks for answering my questions. I read horror stories of MFT/MLT stereos being sluggish, crashing, turning up the AC or audio randomly, besides being hard to use. Glad to hear yours has been reliable and I may rethink my position on that. We bought a 2011 F250 new with the original SYNC and love it. Best voice recognition in a car ever! The ride is bad on the Wife’s back so the MKT may be an option.
            Cheers!

          • 0 avatar
            bball40dtw

            The horror stories are mostly a thing of the past. I had one that involved me yelling at a customer relationship center supervisor who told me that it was my fault that MFT crashed. I honestly didn’t have an issue in all of 2013.

            I got to ride in the 2015 F-150 on Saturday. If you want to still have a truck, waiting for that wouldn’t be a bad plan. The MKT is better on the back though.

    • 0 avatar
      TMA1

      ” No wonder the classic convention of “msutb e able to move X00k units per year to survive” doesn’t hold true for makes like BMW; they get to sell most of thier cars twice!”

      That explains why I see BMW advertising 2011 3-series like they were new cars.

  • avatar
    dwford

    CPO programs are only as good as the dealer you’re buying from. Dealers can buy the off lease cars cheaper than the leasee can, and often skimp on the “150 point” safety check. At least that’s been my experience in the car business.

    • 0 avatar

      Yes and no. While it’s the dealers responsibility to ensure the car is correct, it is a factory backed program. The warranty is is honored by the factory. Another thing in the customers favor is you likely signed off that you received the x point checklist. If you find something clearly skipped you can take that back in and get it resolved in most cases. The factory wants these programs run properly and you’ll typically get your way if you have to put the dealership against both yourself and the factory. Of course in a perfect world it never comes to this.

  • avatar
    mkirk

    I agree on CPO. When I shopped recently the price was too close to new on most of them that it just wasn’t worth it. If I was buying some German Luxo metal, then maybe, but then again I’d probably just lease it like the dude that had it before it became a CPO. Yes, they seem to be pretty proud of that 150 point inspection.

    Yes, they can shave thousands off the sticker. They also add thousands to the odometer. They are cheaper because they are used.

    • 0 avatar

      CPO usually works best when buying a German luxury model. The W222 for example is $110,000 new, but after a 2-year lease and CPO status, will cost around $65,000.

      A jaguar XJ-L gets hit even worse.

      • 0 avatar
        sportyaccordy

        That’s 2 years less of a warranty you’d be foolish to go without. No thanks. There is a reason the car loses 32% of its value in 2 years, and more importantly, why a 10 year old Honda Accord costs about the same as a 10 year old S-class. If a car’s value relies more on it being new than it being a car, it’s not really worth much at all.

    • 0 avatar
      hreardon

      A one or two year CPO’d A4, A6 or Q5 can be had at a substantial discount. One of my local shops had a 2012 A6 3.0T Premium Plus with 11,000 on the clock CPO’d for $40,500. That’s a car that stickers for almost $56k new. 2012 Q5 Premium Plus 2.0T with 15,000 for $30k. 2012 BMW 335 M-Sport, navigation premium package, manual transmission with 17,000 miles for $33k. That car is $53k new.

      Those are pretty darn good deals. That said, I do fully agree that it depends on the brand, but with a little bit of hunting you can save some big bucks and add an additional year or two of warranty coverage (especially if you go one-two years used).

      • 0 avatar
        NormSV650

        Last year I was offered CPO on my same year Verano 2.0T for $400 extra. I declined the extra warranty but still got the free oil change. The car ended up being 30% off MSRP with 6K miles on the clock. The tires were evenly worn with no signs of abuse plus the price smoked new car price from TrueCar as there were no discounts on a new model.

  • avatar
    doctor olds

    How does this off lease volume compare to pre-collapse years- say 2007 and before?
    It seems like 2009 would be a deep fall in the curve. My investment growth since then should make me a billionaire! (not!)

    We had been leasing cars for over 10 years, but no lease deals were available in ’08 and ’09 when we had to buy replacements. We just traded when lease deals were good again. The product churn was about the same.

  • avatar
    S197GT

    Also, buyers need to be aware of “dealer” certified pre-owned vehicles vs the actual manufacturer’s CPO program. Just bought a Mazda CX-9 and when talking to the salesman I said I was surprised it wasn’t a CPO. He said, “Oh it is!”. I knew they hadn’t had it for very long so I figured they just hadn’t gotten it updated or it had just been certified. Nope, found out later it was a dealer certified program. Basically it meant nothing and they gave you a Q-Certified powertrain warranty that as best as I can tell duplicates what the Mazda’s Powertrain Warranty already provides, so it is worthless!! Salesman lied and said the extended warranty started after Mazda’s 5yr/60k-mile warranty expired, but that is not the case according to my reading of the warranty papers. It started at purchase and lasted 2yrs, up to 100k miles.

    I got the car at a great deal. Basically wholesale (says NADA) but they will make money off my trade (got a decent price on my trade, not great). So I ended up not making an issue out of it. I would have paid the same price without all the CPO B.S.

    Buyer beware.

  • avatar
    cartoon

    One additional consideration with a CPO purchase: CPO warranties are not like new car coverage. Typically, they give buyers some comfort for mechanical issues, but do not cover many electrical/software issues (like nav/head units, etc)–which are, in todays cars, the most vulnerable to failure; and expensive. To get a new car type warranty (like BMW’s platinum coverage) expect to pony up and additional $4,000 to $7,000 depending on the model.

    • 0 avatar
      bball40dtw

      You certainly do have to look at the warranty. You also have to be careful of the dealership you go to. One dealership will say that something isn’t covered by the CPO warranty, but the other says it is. I’m sure that happens with new cars too though.

    • 0 avatar
      Kyree S. Williams

      I noticed that, and I did notice that BMW does not cover its infotainment systems in standard CPO warranties. As nice and solid as iDrive is, it’s also very complicated and expensive to replace, so I’d be wary. However, there’s much documentation on the CCC and CIC iDrives, so you can probably buy a replacement unit and have someone code it into your vehicle. GM’s new vehicles under the Global-A architecture, if a CPO warranty doesn’t cover infotainment systems, are even worse because those modules cannot be swapped out or retrofit-replaced. You’d literally have to find the *exact* same unit as the original, and even then I’m not entirely sure that they can be replaced just like that.

      • 0 avatar
        bball40dtw

        Cadillac just extends the original warranty for 2 years/20,000 miles. So you end up with 6 years/70,000 miles. Everything else GM CPO is just powertrain, unless you purchase additional coverage.

    • 0 avatar
      racerxlilbro

      Actually, I just purchased a 2011 F10 M-Sport 535 CPO with 36k on the clock. The original factory warranty is good all the way to 50k. In order to have the same bumper to bumper coverage added to the CPO 6yr/100k warranty, the platinum coverage was only an additional $1,395. The maintenance plan was pricy, however. It was nearly $2,300. I’m not sure I did the right thing buying the additional maintanence, but knew that if the car needed brakes, it was covered. I drive 25k miles a year, and figured at worst, the contract would be a push. In retrospect, I’m not sure I would spring for it again. But, the platinum coverage was a no-brainer.

      • 0 avatar
        Kyree S. Williams

        A fine purchase, if I do say so myself. Are you allowed to negotiate on those warranties, and can you buy them at a time other than when you purchase the car?

        • 0 avatar
          bball40dtw

          You can negotiate the warranties with most places, and you can buy some things after you purchase your car. The costs change based on the miles and age of the vehicle.

        • 0 avatar
          racerxlilbro

          Their prices are negotiable, and you can purchase extended warranty coverage up until the original factory warranty expires. In our case, we were on the fence about whether to pay cash, or finance. We were able to get a ridiculously low interest rate, so we financed the lot of it, and therefore decided to buy the warranty at the time of the purchase.

  • avatar
    SCE to AUX

    It will be interesting to see how EVs do coming off lease. If I elect to purchase mine, I won’t be paying the contract price.

    • 0 avatar
      imag

      I agree – I am very curious about this. The early Leafs are going to take a huge dive for sure. It will be interesting to see about the others.

      We are planning on leasing an electric car, but there is no way I would buy one at this point. Electric cars are excellent vehicles, given their limitations, but new technologies generally do not make for a good investments.

  • avatar
    philipbarrett

    Lease turn backs and the stack-em high, sell them cheap dealers (typically Iranian/Persian in my neck of the woods) are a used car buyer’s dream.

    Low miles, well looked after and lots of original warranty left. All for 1,000s less than even the dealer used car lot.

  • avatar
    That guy

    Used car prices went from ludicrously low (late 2007-late 2010) to really high (mid 2011 to present). I broke even on a truck I bought CPO from a dealer in Jan 2010 and traded in back in Sep 2011, after 20K miles. With the expected influx of off lease cars coming in the next few years, I expect things to settle somewhere in the middle.

  • avatar
    mcarr

    My three current vehicles were purchased used, but they were the current model year, all with around 10,000-15,000 miles. Each one was 25%-35% off the sticker price of the brand new version sitting next next to it. Granted, that was sticker price, but no amount of negotiating is going to get you close to that.

    I for one will welcome a glut of used cars.

  • avatar
    Kyree S. Williams

    I read somewhere that if a well-kept one-owner European car is on its respective-brand’s lot and isn’t a CPO car, there’s usually a reason why…such as the fact that the car would take too much money to bring up to CPO-grade, or isn’t CPO-able. Obviously that’s not true in all cases, especially since the brand’s own dealership would want to also target customers who aren’t willing to pay CPO premiums…but I do wonder if there’s some truth to it when I see a two-year old 3-Series sitting on our local BMW lot that isn’t a CPO car. You never quite know what you’re getting with today’s European luxury car.

    • 0 avatar
      bball40dtw

      The most common factor is mileage. Lincoln won’t CPO anything over 60K miles. I’m not sure what other brands limits are.

    • 0 avatar
      krhodes1

      Many BMW dealers will sell you a used car either way. You get it cheaper without the CPO (and they get to advertise it cheaper to get the bodies in the door).

      CPO is just an extended warranty, which IMHO is AT BEST pre-paying for repairs that the car may never require. I simply wouldn’t buy a car in the first place where I thought an extended warranty was some sort of necessity. Extended warranties are a worse bet than Vegas, the house ALWAYS wins, and wins BIG. And I am not the lucky sort.

    • 0 avatar
      racerxlilbro

      It’s a great question, and I only just learned about this. I looked at a car similar to the one I bought which was NOT certified. After a little digging, what I learned was the dealer had overpaid for the car in trade, and didn’t want to spend another ~$2k to make it CPO. As it was, there was very little chance they were going to get out of that particular car even money. If I recall, they were into it for almost $40k. Just for perspective, I paid $41,300 plus the warranties for mine.

  • avatar
    E46M3_333

    Warranties, particularly extended warranties, are over-rated and a bad deal for most buyers. If they weren’t, they wouldn’t be sold. They are carefully worded so as to not cover most items that are likely to fail. Better to buy something off warranty and put the savings in the bank to cover maintenance, IMHO.
    .
    .

  • avatar
    dal20402

    Maybe this will finally bring a bit of relief from the insanely high used car prices of the last couple of years. Prices jumped, as expected, when 2009-2010 used cars were the lease returns, because production during those model years was so low. But the prices have stayed high even as supply increased a bit with 2011 and some 2012 vehicles now in the market.

    With the exception of 1) high-end luxury metal and 2) cars no one likes, buying late-model used cars has been a fool’s game since around mid-2011. Prices are only marginally lower than new and better financing terms are available on new cars. But maybe now the market will start to normalize a bit.

    • 0 avatar
      highdesertcat

      “Maybe this will finally bring a bit of relief from the insanely high used car prices of the last couple of years.”

      Don’t count on that. Demand for cars is at an all-time high since the political situation is settled for the remainder of this year, and getting a loan is a given, under the current circumstances.

      America currently has ~40 million individuals who are either unemployed or working part-time and while they may not be looking to buy a car, that still leaves more than 120 million people with full-time employment, many of them looking to move up and/or buy a new or used car.

      In May of this year we’ll be buying a new car for our grand daughter who will enter the workforce full-time after graduation from college and we are already getting offers from her girl friends on her 2011 Elantra with more than 60K on the odo. Go figure!

  • avatar
    FreedMike

    Good news: when the XTS V-Sports come off lease in a couple of years, I’m there. :)

  • avatar

    I wonder how many of the rental cars were Chevy Captivas

  • avatar
    davidziff

    Used car prices are only high when you are a buyer. If you are looking to trade in your used baby — get ready to take a beating. If are looking for a sweet spot in the used car market — look at Buick. They are knocking off 6-7k off MSRP on the LaCrosse. You can figure another 12-14K depreciation after 2 years. Buick has a 4 year warranty so do the math. I have a 2012 and am very happy with the car. Interesting is the market for the new Impala. Red hot with not much of a discount. They are selling well and the LaCrosse [essentially the same car] gets huge discounts to move units and folks aren’t paying attention.

    • 0 avatar
      28-Cars-Later

      I haven’t checked since last spring, but MY10 Lacrosses MSRP’d right around 30 and they were doing high 15s sub 30K otc. I think 11s were slightly higher in the 17s. If you can get the car for $25K you’re only losing about ten in that first two year period.

    • 0 avatar
      NormSV650

      You could have gotten $8,000 off LaCrosse this summer as I did look at it for almost 1/3 off an eAssist. That included $2000 Conquest bonus for own a Saab. This wa with the new redeigned LaCrosse coming out.alas the Verano 2.0T was what I was looking for and with the Trifecta Tune and 40+ mpg on the highway I couldn’t be happier.


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