An emerging trend — where dealers use off-lease vehicles from short-term leases to stock certified pre-owned (CPO) programs — is shifting the way consumers purchase new cars. This trend is occurring across segments and price points, according to Matt DeLorenzo, senior managing editor of Kelley Blue Book. Kia and Toyota are two OEMS that are both “aggressive in it,” he said, adding that domestic automakers, such as Chevrolet and Ford, are beginning to catch on.
“The actual new-car model may be that people in the higher income ranges are leasing new vehicles, and most people who want to own or buy the vehicle and keep it long term will buy one of these off-lease CPO vehicles,” DeLorenzo said. “My first new car may not be a brand-new car; it could be a low mileage, two-year-old car.”
The two-year lease program is one of the driving factors behind the leasing boom. According to Experian data, leases accounted for 34% of all new car sales in March, the highest rate ever. With all this leasing activity, the industry predicted a flood of off-lease vehicles to destroy used-car values, but that has not been the case.
“What we’ve seen is a much more disciplined approach by the manufacturers taking those cars back and putting them out into the marketplace as CPO units,” DeLorenzo said, noting that it’s much more profitable for dealerships. “There’s tremendous incentive to use leasing to build good CPOs,” he added.
In some segments, such as luxury vehicles, leasing volumes already have overtaken financing. DeLorenzo said nearly 70% of luxury new car sales are leases. Even non-luxury brands, such as Kia, Chevrolet and Mazda, are leasing up to 38% of their new cars, according to Kelley Blue Book.
