The idea of used car leasing was going around the FSAVF Conference and the NADA Convention in 2016. Now a year later, used car leasing continues to be a small sliver of the auto market.
The reason the used leasing market hasn’t taken off is that the payments are too close to the payments on a new vehicle. Lenders are also not sure how to set a residual value on leasing used cars.
Last year BMW, Toyota, and Ally Financial were encouraging used leasing while preparing for a rental return overstock. Ally still has their program, but say that leasing used cars isn’t going too well. Tim Russi, president of auto finance, says that there is too small of a payment gap between leasing new and used vehicles. However, as prices get lower on used vehicles, the payment gap should widen. And if they keep their incentives on leasing used cars, they believe that the program would be successful long term.
Every quarter there are around 40,000 used leasing transactions. Last year, many were expecting leasing to increase, but lenders aren’t sure where to start the
There are typically 40,000 used-vehicle lease transactions per quarter, Melinda Zabritski, Experian’s director of automotive finance, told Automotive News. Many expected used leasing to grow last year, but many lenders don’t know where to set their residual risks.
Vehicles that turn into used leases are usually from the current model year or only a model-year-old. However, with these cars, customers are often so close to the new car pricing that dealers usually end up signing them with a new car. If it’s only a $20 difference, most customers would rather have a new car.