By on April 22, 2014

Used cars

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. 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.

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24 Comments on “Automakers, Dealers Prepare For 2016 Off-Lease Market Flood...”

  • avatar

    This is ok to me. Cars I trade in aren’t worth much anyway due to mileage, so being worth 5 grand instead of 6 isn’t a big deal. On the other hand, since I might buy a lease return, the extra supply will lower prices more than one grand. So overall I benefit.

    The makers lose, but it will be their own fault.

  • avatar

    Fortunately there’s 144-month financing available to those who truly need a car, but absolutely can’t afford it!

  • avatar

    Perfect! By then, we’ll probably be looking to get a second vehicle (again).

  • avatar
    Car Ramrod

    I’m guessing that the lease mix is to some extent a self-correcting mechanism. I’m reading that leases are cheap now due to high residual values. Does it stand to reason that leasing will become at least somewhat less attractive than buying on a relative basis as the 2-3 year old used car market grows and residual values drop accordingly?

  • avatar

    Seems like a boon for someone like me, who normally buys used and don’t have any/much of a trade-in.

  • avatar

    2.13 million used CPO cars and 1.78 million of them with intermittent TPMS malfunction warning light. Joy!

  • avatar

    I remember used car shopping in 2002. I’d never seen so many beige Accords.

  • avatar

    Works for me. We’ll be in the market for a SUV or CUV at that point in time anyway. My wife liked the 2014 Santa Fe at the auto show this spring; it might be a good opportunity to pick one up.

  • avatar

    Interesting, I’m looking at replacing my xB and 2016 would be the perfect time and probably just cresting 100K. It will be a serious debate between picking up a brand new 2016 or settling for something two years old and substantially cheaper. The only question I have is, what are most of those leases going to be? A sea of mid-level camrys? Scores of Accords with 20-40K and nothing worth my time?

    • 0 avatar
      Dave M.

      Leases could end up being pretty much anything. I say that only because I wanted a specific color off-lease manual Saab Aero convertible with under 25k miles.

      Found it off-lease in 2 days of hardly looking.

      So your personal unicorn may in fact be out there…

  • avatar

    Falling residual values and rising interest rates will also decrease new car sales. These would be customers will be steered to he CPO/used side of the lot where they will give dealer’s juicy mark ups and big sales of warranties.

    • 0 avatar

      Maybe that’s why automakers are feverishly pushing new models and refreshes. Make hay while the sun shines. Then we’ll see what makers did the best job keeping their capacity in line with future sales, and preparing for the economic downturn this boom will produce. The national economy is likely to be affected too, so we’ll get to see how the Federal Reserve and D.C. leadership respond as well.

  • avatar

    Works for me – I’ll be looking for a used car for daughter number one in this time period.

    All those give away leases from Nissan, Toyota, and BMW are going to come back to the nest.

    • 0 avatar

      Beware of off-lease BMWs without CPO or extended warranty, especially 3ers. Just my personal observation.

    • 0 avatar

      I can’t believe how cheap some of the leases that friends of mine have are. One friend drives a pretty much loaded up Ram 1500 4×4 that is only $141 a month for 39 months. The down wasn’t that much, and he sold a couple of old POS cars he had that his kids used to use to get most of that. He’s not going to be even close to the mile cap, he lives literally 2 miles from work, and sometimes walks his dog to and from work on nice days. (I miss not having my dog at work with me, he was sometimes a pain in the ass, but it made the nights go faster). I might look at an off lease car next time, as long as it has a year or so of bumper to bumper warranty left it should be ok, but the latest repair screw ups (scratched bezels, armrests, not plugging stuff back in) by my dealer, who I have no other complaints about, have left me wondering about continuing to buy from them. The other dealers are not nearly as convenient and have pissed me off in the past to the point of not wanting anything to do with them unless I have to.

  • avatar

    Up to 2007 lease penetration in Canada was over 40%, lease returns never created a problem for anyone, they generated opportunities for many folks.
    In the ensuing years to now CPO programs have expanded by all manufacturers, to encourage dealers to retail more used vehicles.

    Making money twice on a vehicle by leasing it when new and retailing as a CPO makes a ton of sense for manufacturers and dealers. Especially with “slimmer” profits on new vehicles.

    With big data captive finance companies can calibrate the lease terms to smooth out the flow of lease returns, offer 24 months, then 27, then 36, then 39, then 48 month lease at various times of the year.

    Many manufacturer finance arms make provisions for “residual value” fluctuations.

    It makes for a good story, in reality its not a big deal, it moves new iron, and making money twice on a vehicle is part of the car business, be it a lease return or a trade in.

  • avatar

    Ugh… great if you are getting a CPO without a trade. But if I’m understanding this correctly, even private sales will be harder due higher volume “deals”/inventory.

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