To cope with an industrywide flood of 3.1 million off-lease vehicles returning to the market this year, some captives and other lenders are offering leases on used and certified preowned vehicles.
The number of off-lease vehicles will be up almost 20 percent from 2015, and will continue to grow in 2017 and 2018, auction company Manheim, part of Cox Automotive, forecasts.
Leasing has surged as a share of new-vehicle transactions to 29 percent in the fourth quarter of 2015, from 24 percent two years earlier, according to Experian. The climb was largely driven by captive finance companies seeking to boost sales by keeping customers' monthly payments low. Leasing has been fairly rare in the used-vehicle market, but its share is growing. In the fourth quarter of 2015, 3.8 percent of leases were on used vehicles, edging up from 3.2 percent two years earlier.
Now Toyota, Ally Financial and BMW are encouraging used and certified leasing to prepare for the glut of lease returns. Infiniti is considering a certified leasing program, a spokesman said, but has nothing to announce yet.
As Toyota Motor Sales U.S.A., Toyota dealers and Toyota Financial Services brainstormed ways to get more customers into the off-lease vehicles, leasing more certified preowned vehicles seemed like the best solution, said Mike Wells, group vice president of sales, marketing and product for Toyota Financial Services.
Certified leasing was available to Toyota, Scion and Lexus dealers before, and when those dealers began tapping it in larger numbers, Toyota Financial Services decided to encourage its use with various incentives, such as discounts on rent charges, which is a finance fee paid to auto lenders, similar to an interest rate on a loan.
In January, Toyota Division and Lexus began rolling out incentives for certified leasing in the Northeast. The national rollout should be completed by the end of this month.
Toyota and Lexus are "rallying around that volume as an opportunity," Wells said. "This just became one more of those tools that they believe they can use to bring in some of those cars and keep [customers] coming back to us."
Toyota, Lexus and Scion certified vehicle lease terms will last 36 months on average, similar to a new-vehicle lease. To be eligible for a lease, Toyota and Scion certified vehicles must be no more than 3 model years old with fewer than 65,000 miles on the odometer. Lexus CPO lease vehicles must be no more than 4 model years old with fewer than 60,000 miles.