As 2016 comes to a close, it is important to keep an eye on the effect of car leasing we can expect to see going forward.
In the last few years there has been a large increase in the ratio of vehicles being leased versus purchased. As far back as 2013, a Forbes article noted the popularity of leasing due to customers getting over the economic recession as well as the attractiveness of being able to drive new cars and avoiding big down payments.¹
In a recent Bloomberg article, it warns of a potential pile up caused by the record amount of vehicles coming off-lease.
In 2017, about one million more off-lease vehicles will be available in the U.S. compared with 2015. That additional volume will put downward pressure on used car prices. -Chris Bryant, The Used Car Pile-Up
Car leasing has always been popular in luxury brands but others are getting into the mix as well. Compared to 2009 lease penetration from Ford, GM, Honda and Toyota has doubled or grown by a factor of 10.²
Two of the most sought out segments that will be increasing significantly are compact SUVs and midsize SUV. These two segments will rise 59% and 48% respectively from 2015 volumes.
The issue of the flood of cars coming off lease and into the marketplace is the downward pressure that’s created. As a result the expected volume will quickly depreciate their value. Consumers now would be less likely to be interested in paying high prices for new vehicles. With the price decline, vehicle depreciation is expected to increase from 14% in 2015 to 17.6% in 2016.³
The Certified Pre-Owned segment has also shown strong growth. It has been fueled in part by the volume of lightly used off-lease vehicles returning to market. The latest Used Car Market Report from Edmunds shows that CPO sales accounted for 23.2% of all franchise used sales in Q3 of 2016. 2016 looks to be the 6th consecutive year in which sales reach a record high. Look for the CPO segment to play a major role in the used car market going forward. High volumes and nearly new models may be more appealing for the price to consumers than new cars.
2017 is sure to be an interesting year with the volatility of the car market and the increased volume of off lease vehicles. At Advanced Remarketing Services we are determined to provide the highest return on each vehicle for our clients. In doing so it is important to read the market and be able to navigate change.