3rd parties left out of off-lease buybacks

Many automakers' captive finance lenders are restricting off-lease buybacks by third parties amid the chip and inventory shortage, though a small number continue to give consumers and dealers flexibility.

"We are disappointed by policies that restrict a customer's ability to engage in the car buying and selling process that they desire," CarMax wrote in an email to Automotive News this month.

The national used-vehicle retailer said it keeps a running tally of such rules on its website and at its stores, and it recommended customers check with their lessor before trading in a leased model.

The company said it can't purchase a vehicle leased through: Nissan Motor Acceptance, Infiniti Financial Services, American Honda Finance, Southeast Toyota Finance, GM Financial, Ford Credit, Mazda Financial Services, Volvo Car Financial Services U.S., Lincoln Automotive Financial Services, Acura Financial Services, Hyundai Motor Finance, Kia Motors Finance and Mercedes-Benz Financial Services.

Mazda, however, said its captive finance arm does permit third-party lease buybacks, "per the terms of their lease agreement, without any other restrictions."

And Mercedes said customers could arrange a buyout by a third-party retailer.

"In terms of exercising the lease purchase option, Mercedes-Benz Financial Services does not provide quotes to non-franchise dealers," Daimler Mobility spokeswoman Melinda Mernovage wrote in an email. "However, a customer may request a purchase option quote at any time, and we will accept a payment on a lease purchase from any verified payment source."

Other captive finance companies cited by CarMax described tighter off-lease restrictions.

Hyundai Motor Finance and Kia Motors Finance this month confirmed that under a new temporary policy, "We are not providing buyout quotes to non-franchised dealers." Only customers and Hyundai and Kia dealers can receive off-lease quotes.

Nissan Motor Acceptance said there was "no change requested for bank-/credit union-facilitated purchases," but effective May 10, other third parties no longer had the capability to buy off-lease vehicles. GM Financial instituted a ban on off-lease purchases outside of its dealers effective July 1, and American Honda Finance announced a similar moratorium July 8. Ford Credit's ban on third-party off-lease buybacks predates the chip and inventory shortage.

A spokeswoman for Southeast Toyota Finance said no one at the captive was available to comment, but one of the company's dealers confirmed a restrictive off-lease policy.

One other captive outside the CarMax list is set to toughen rules for off-lease purchases.

BMW Financial Services will prioritize franchised dealers on its online auction platform and will temporarily suspend payoffs from third-party dealers as of Friday, Oct. 1, a spokesman for the automaker said.

But other captive finance companies eschew restrictions.

Chrysler Capital, Mitsubishi Motors Credit of America, Volkswagen Credit and Toyota Financial Services confirmed they allow returns and buybacks anywhere.

"I'm happy we do that," said Rob van Nieuwburg, business relations director for Ventura Toyota, a dealership in California.

Van Nieuwburg said he disagreed with the idea of restrictions. "What about the consumer?" he asked.

Rather than restrict lease trade-ins, Toyota Financial Services has "deployed new loyalty and lead-generation initiatives."

Both Chrysler Capital and Volkswagen Credit cited customer service in explaining their policies.

"We feel the flexibility we provide will ultimately result in a return customer," Volkswagen Credit spokeswoman Tara Dyer wrote in an email. She said customers could return vehicles anywhere, but "nearly all vehicles" are bought by franchised dealers.

"We do allow some non-franchise dealers to pay off our lease contracts at a market-based price as we don't want to limit our customers' options," Dyer wrote.

Van Nieuwburg said he didn't think customers' ability to trade off-lease vehicles at competitors had hurt his store.

His dealership's high loyalty score would keep lessees from patronizing other stores, he said, though he observed dealers with weaker customer relationships could have a harder time.

Germain Toyota of Naples falls within the five-state jurisdiction handled by Southeast Toyota Finance, which General Manager Brian Kramer said restricted third-party lease buybacks.

Kramer said Sept. 14 that he had just taken a call from a customer who attempted to trade in their off-lease vehicle at a third-party competitor.

"They were very upset" they weren't able to, he said.

Kramer also noted that off-lease restrictions was the "hottest topic" in a car sales group call he'd participated in that morning.

He said he initially wasn't sure about the policy's value, seeing it as merely a play to stymie online retailers.

But he said he grew to see the automaker's thought process as "we're the best end user for a late-model Toyota."

A Toyota store similar to his dealership is likely to be able to sell a returned vehicle faster than a competing brand's retailer, and it'll pay more to the customer as a result, Kramer said.

He also noted some dealers on the call had formed alliances to exchange off-lease vehicles for a small fee. Others simply kept the vehicles for inventory.

"Eventually, organically, the ecosystem's gonna figure it out," Kramer said.

Sonic Automotive Inc. ranks seventh on Automotive News' list of the largest new-vehicle dealership groups based in the U.S. in 2020. The Charlotte, N.C., company also operates its chain of EchoPark stores selling newer, low-mileage used vehicles exclusively.

Sonic President Jeff Dyke chuckled when asked about the group's off-lease buyback restriction views, knowing he would have to answer in "two exactly different ways."

As a franchised dealer, it's "fantastic," Dyke said. From EchoPark's perspective, "that's pretty tough."

But Dyke said EchoPark has a leg up over fellow used-vehicle retailers in being able to buy inventory from sibling franchised stores. The company also can refer EchoPark customers with off-lease vehicles to Sonic franchised dealerships to handle the buyback.

"We're certainly doing that as much as we can," he said.

Dyke said some customers have jumped through the hoop of buying their lease and then obtaining a used vehicle.

But customers also have been likely to just buy out or extend their lease and keep the vehicle, fearing they'd be unable to find a replacement.

"There's no new cars to buy," he said.

Ultimately, the off-lease restrictions pose an inventory challenge to EchoPark, but the inability of customers to trade in off-lease vehicles hasn't strained revenue, according to Dyke.

"We're not losing sales," he said.