Automakers, Dealers Prepare For 2016 Off-Lease Market Flood

Currently, around 2.13 million cars will come off-lease by the end of 2014, up from 1.7 million last year. By 2016 and beyond, however, over 3 million vehicles annually will turn up on many a CPO and used car lot, replacing a long drought with an El Niño-esque flooding of the U.S. used car market.

Automotive News reports the predicted rise in off-lease vehicles, though a boon for used-car dealers and their customers, will slam new-car buyers come trade-in time, as lower prices for used means lower value for those trading their vehicles for a new experience in the showroom floor. Rising interest rates and lease payments to make up for lower used pricing will also add pain to a new-car buyer’s wallet come 2016.

As for automakers and dealers, both parties are preparing the flood with various strategies being put together, such as Volkswagen’s partnership with DealerMatch — allowing VW dealers to buy and sell as many used vehicles as desired for a flat monthly fee, in lieu of the auction lot’s per-vehicle rate — and workshops designed to optimize CPO sales among dealers and sales representatives.

That said, some automakers and dealers may still find themselves overwhelmed by the coming tsunami due to leasing more vehicles than are sold. Edmunds.com senior analyst Jessica Caldwell says leases accounted for 26 percent of all new sales in the U.S. last year, while 28 percent of sales in Q1 2014 were leases. The increase in leases is aided by easy credit, rising residual values and record-low interest rates, and serves as a marketing tool to build customer loyalty through repeat visits as each lease agreement draws to a close.

The last time over 3 million vehicles came off-lease was in 2002, when 3.4 million returned to the used-car lot before slowly coasting downward to a low of 1.56 million a decade later.