Off-Lease Vehicles Set to Flood Used Car Market Along With More Former Rentals

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 News, the 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.