Black Book released a white paper designed to help remarketers and auto lenders identify when and where used leasing makes sense for a portfolio.
“How to Grow A Profitable Used Leasing Portfolio” details differing depreciation values for vehicles and the fluctuation of residual forecasts.
The document covers where used leasing would not make sense by offering a comparison of a new vehicle finance environment against the same vehicle after 36 months. Conversely, it covers where used leasing would make sense by offering a similar comparison of a new vehicle with its counterpart at 36 months.
The paper also explains how to leverage residual data to find used-lease candidates.
“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,” said Anil Goyal, senior vice president of automotive valuation and analytics for Black Book. “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.”
Leasing as a finance option has grown by 76% since 2008, and more than 3.1 million vehicles will return to the market by the end of this year alone. This is expected to increase the number of off-lease vehicles by 20% from 2015, according to the paper.
The top leased vehicles returning to the market are popular cars by volume, reflecting an interest in non-luxury vehicle leasing. The vehicles include the Toyota Camry, Honda Civic, Honda Accord, Toyota Corolla, Honda CR-V, Ford Escape, Nissan Altima, Ford Fusion, Lexus RX 350, and Toyota RAV4.
Last year was a record year for new auto sales, with more than 17 million sold. Of these sales, about 85% were financed or leased. Leasing has grown faster than financing, according to the report. Used-lease volume has remained consistently small numbers of the last year, averaging 3.90% in Q1 2015 versus 3.98% in Q1 2016.