Certified leasing helps dealer ease glut of returning vehicles

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Zion: Retaining customers

Some retailers may be sweating the slew of lease returns expected to bombard their stores this year as the ranks of off-lease vehicles swell to more than 3 million industrywide.

But not Toyota dealer Steve Zion. In anticipation of a glut of returning vehicles, he began revving certified used-vehicle leasing a year and a half ago. Now he leases about 20 certified used vehicles a month.

“We saw we were going to have the biggest increase [in lease returns] in our history,” says Zion, owner of Toyota of Wallingford in Wallingford, Conn. At the time, he thought: “We’re going to be running off a cliff here soon if we don’t react.”

Zion says his dealership was one of the first Toyota stores to offer certified leasing to help manage lease returns. And he appreciates having a process in place. This year Toyota Division, which consists of Toyota and Scion, has about 275,000 off-lease vehicles — a record — coming back to the market. Industrywide, about 3.1 million off-lease vehicles will return to the market in 2016, up nearly 20 percent from almost 2.6 million in 2015, according to auction company Manheim.

Last year was tough in itself, Zion says. Toyota of Wallingford had a “huge” number of lease returns. “If we [didn’t] move these pre-owned vehicles, it would change the residuals on the new ones and raise the price. We wouldn’t be competitive.”

Fortunately, Toyota Financial Services last year devised a plan to help dealers evaluate trades differently. The new way creates a residual value for the vehicle coming off lease. Dealers might have overlooked that figure if they were using traditional guides, Zion says.

It changed the dealership’s dynamic. Now, says Zion, “we’re trying to buy back all the ones we can that are ours. It’s very lucrative on both ends. The customer comes out with a next-to-new car.”

This year, Zion is benefiting from Toyota Financial Services’ rollout of incentives for the Toyota, Scion and Lexus certified lease programs, including a discount on rent charges.

As a result of the initiative, the three brands’ certified leasing in the first quarter this year was 10 times higher than in the 2015 period.

Typically, the 20 vehicles Zion re-leases every month would go to auction, where he could pay $900 to $1,000 more on average than if he’d bought the off-lease vehicle from Toyota and leased it to another customer, he says. And certified leasing has another benefit: customer retention. “Those cars are usually around 30,000 mileage,” he said, and that’s what we need in our service centers.”

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Certified leasing helps dealer ease glut of returning vehicles