As off-lease vehicles return to the market and used-vehicle inventories rise, some dealers and lenders are leasing those vehicles. But not all vehicles are suited for a used lease, according to a white paper published by Black Book.
Dealers and lenders should analyze collateral data to determine the best option for the customer, dealership and lender, Anil Goyal, senior vice president of automotive valuation and analytics for Black Book told Automotive News.
“It’s well-known that the [off-lease] supply is coming back more than even what we have seen in the last five years, and the industry is preparing for it,” Goyal said. So dealers and lenders are exploring options for lease returns, including used-vehicle leases.
Black Book published the white paper, “How To Grow A Profitable Used Leasing Portfolio,” on Tuesday to highlight the issues around used leasing and the opportunities used leasing provides, Goyal said.
“As the off-lease inventory of three- and four-year-old vehicles continues to increase this year and over the next few years, lenders, dealers and remarketers will need to find alternative channels to return these vehicles out into the market,” Goyal said in a statement.
Goyal said F&I managers should work with lenders to let lenders know when lease vehicles are expected to come back and to learn which lenders are interested in a used-leasing program. The lenders can then help dealership personnel understand how the monthly payments for new and used leases differ.
“It’s another value-add for a dealer to have data around the new-lease scenario and used-lease scenario and provide options for F&I managers to offer to customers,” Goyal told Automotive News.
Vehicles depreciate differently, the white paper notes. As residual values rise and fall, lenders and dealers should analyze collateral data to decipher which vehicles are best for a used lease.
When evaluating used-lease candidates, Black Book suggests, lenders and dealers should:
- Look for vehicles with relatively lower levels of incentives or subvention on the new version of a nameplate.
- Analyze collateral data to identify vehicles with lower depreciation after three years of age.
- Review data on cents-per-mile depreciation differences between new and used leases to determine mileage charge differences in higher mileage cases.
- Look for lower certified pre-owned costs to find used vehicles with lower capitalized cost.
“Used leasing may be the right choice for some of these vehicles, but the wrong decision can be detrimental to the profit margins of a portfolio, which is why collateral data can mitigate any vehicle profit risk,” Goyal said.