Is World Finally Ready for Used-Car Leasing?

Now that new-car leasing is making something of a comeback, is it time to try again with used-car leasing?

Yes, some remarketing experts say. “Why not?” others say . “I’ve always wondered why used-car leasing wasn’t taken advantage of by more people,” says Ricky Beggs, managing editor of the Black Book, a pre-owned vehicle pricing guide.

After new-car leasing exploded in the 1990s, many people predicted used-vehicle leasing would be the next big bang.

It fizzled for various reasons. One was that monthly payments differed little between new- and used-car leases because auto makers slapped incentives on the former.

Auto makers remain an obstacle to used-car leasing, Beggs says. Their vehicle-financing units overseeing leasing programs aren’t interested in re-leasing an off-lease car, he says at a recent National Remarketing Conference. “Captive lenders don’t want that car back a second time.”

It’s a better market now for used-car leasing, but its under-achieving past may hurt future prospects, says Jonathan Banks, executive analyst for the NADA Used Car Guide. “People may look back at the problems and be influenced by those.”

On the other hand, leasing in general is enjoying a mild resurgence, and used-car leasing in particular is a field virtually without competition, he notes.

In its heyday, leasing attracted many consumers who saw it as a way to obtain an up-market vehicle. Accordingly, few people aspired to lease a used vehicle. But now, the overall pre-owned market is booming.

“We’re a proponent of used-car leasing,” says RVI’s Rene Abdahal.

Another past problem was that most used cars offered for leasing were of “negative” quality, says Rene Abdalah, vice president of RVI, a residual insurer. That inferior inventory turned off a lot of car shoppers.

“But we’re proponents of used-car leasing,” he says, noting it is easier to forecast residuals on used cars compared with new.

Currently a few pre-owned leasing programs are offered through several credit unions. The last major bank, US Bank, exited pre-owned leasing in 2008.

“Pre-owned leasing never reached its potential,” says David Ruggles, an industry consultant who formerly ran a used-car leasing program.

Lenders and others bailed out after the asset-back securities crisis of a few years ago, he tells Ward’s. “I believe RVI decided to stop insuring residuals on pre-owned at the time. They would be quite anxious for someone to re-enter pre-owned leasing now, if it were done right. They’re pitching it to various lenders.”

Ruggles adds, “Residuals are much easier to predict on pre-owned and there is less depreciation to worry about.

“And any new lender entering the game won’t have much competition. It’s a mystery why a lease lender would want to compete with auto makers’ captive programs on new vehicles, anyway.”

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