Expecting a flood of used vehicles? Learn to swim
As a drought in used-vehicle inventory is ending, dealers and automakers must prepare to change how they do business.
Low new-car sales in 2009 and 2010 created shortages of late-model used vehicles in 2012 and 2013, especially the 3-year-old, off-lease units that dealers crave.
Because leasing rates and new-vehicle sales rose in 2011, dealers can expect about 20 percent more off-lease units returning this year and further increases in 2015 and 2016.
That's more used vehicles for dealers to sell; but with greater supply, used-car prices will fall -- a double-whammy for prospective new-vehicle buyers. Their trade-ins will fetch lower prices. Residual values of new vehicles also will fall, making automakers less able to offer low-payment leases. If interest rates rise in 2015 or 2016 as expected, that's a third blow against keeping new-vehicle monthly payments low.
Of course, the increased used-vehicle volume is really a return to normal. Automakers and dealers know the drill. Even if off-lease returns top 3 million in 2016, that's still below the 2002 peak of 3.4 million. And they have better tools to prop up residual values and keep leases affordable.
Certified pre-owned vehicle programs have become bigger and more widespread over the past decade. Automakers have refined subsidized, low-cost lease offers. Toyota Financial Services started inspecting vehicles before leases expire, giving customers and dealers better information beforehand. And Volkswagen and a Manheim affiliate created a one-brand online auction that lets VW dealers buy and sell as many units as they want for a flat monthly fee.
The rising tide of used vehicles recreates an old phenomenon. But it's one with new tools and new opportunities.