The amount of lease returns coming in over the next few years will be down substantially, which means that the amount of highly profitable Certified Pre-Owned vehicles available will also be down, which means if you haven’t started exercising that inventory sourcing muscle, there’s no better time to start than now.
Just like that summertime cold that seems to last 3 weeks and you just can’t shake, the impact of fewer lease returns is going to keep perpetuating that pandemic hangover a few more years. Here’s what happened.
Inventory shortages, coupled with rising rates, fewer incentives, and customers with more cash in their pockets made leasing a lot less attractive. Fast forward a few years later to right now and what used to be millions of leased vehicles returned every quarter plummets down to the 500,000s. Automotive News is the source here, and a wealth of information for this data.
Three year old off-lease vehicles are wicked profitable for dealerships. They’ve got great margins, sell fast, and result in service revenue from inspection and recondition. They make up the foundation of the used car market, and a massive chunk of them no longer exist. Like Keyser Soze from the movie Usual Suspsects…poof…they’re gone.
My hypothesis is that the consumers that loved getting that new car every three years still love getting that new car every 3 years. That consumer behavior, that mentality, hasn’t really changed.
With this impending CPO drought comes a phenomenal opportunity for those who can see it and seek it out: Get really, really good at sourcing those 2,3,4 year old vehicles back from your previous customers.
Market to your customers, repeatedly, to let them know that you’re still eager to acquire their car, and know that you can make trading in their vehicle for a new simple, easy, efficient, and pleasant, so that they can get back into that new ride, just like they’re used to.
Frequently Asked Questions
Why will there be fewer lease returns in the coming years?
The amount of lease returns will be down substantially due to inventory shortages, rising rates, fewer incentives, and customers having more cash in their pockets. This made leasing less attractive, resulting in fewer leased vehicles being returned.
How does the reduction in lease returns affect Certified Pre-Owned (CPO) vehicle availability?
With fewer lease returns, the availability of highly profitable Certified Pre-Owned vehicles will also decrease. This presents a challenge for dealerships that rely on these vehicles for their margins and quick sales.
What impact did the pandemic have on the leasing market?
The pandemic caused a shift in consumer behavior and market conditions, leading to fewer lease returns. This ongoing effect is described as a “pandemic hangover” that continues to impact the automotive industry.
What happened to the millions of leased vehicles that used to be returned every quarter?
The number of leased vehicles returned every quarter has plummeted from millions to the 500,000s. This drastic reduction has significantly impacted the supply of used cars.
Why are three-year-old off-lease vehicles important for dealerships?
Three-year-old off-lease vehicles are highly profitable for dealerships because they have great margins, sell quickly, and generate service revenue from inspections and reconditioning. They form the foundation of the used car market.
Has consumer behavior regarding new car acquisition changed?
The hypothesis is that consumers who loved getting a new car every three years still maintain that behavior. The mentality of wanting a new car every few years has not significantly changed.
What opportunity arises from the impending CPO drought?
The CPO drought presents a phenomenal opportunity for dealerships to get really good at sourcing 2, 3, and 4-year-old vehicles from previous customers. Effective marketing to encourage trading in vehicles can help dealerships maintain their inventory.
How should dealerships approach previous customers to acquire their vehicles?
Dealerships should market to their customers repeatedly, letting them know they are eager to acquire their cars. Making the trade-in process simple, easy, efficient, and pleasant can encourage customers to return their vehicles and get into a new one.
