Store expects its used-car leasing to grow

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“Everybody’s sweet spot is a payment much lower than a new-car payment,” says Wes Lutz, left, owner of Extreme Dodge-Chrysler-Jeep-Ram in Jackson, Mich., with sales team member Brad Cooper.

Wes Lutz, owner of Extreme Dodge-Chrysler-Jeep-Ram, of Jackson, Mich., began leasing used cars and trucks almost two years ago for the same reason automakers lease new vehicles: to get his customers into late-model vehicles at payments lower than they typically could get with a traditional finance contract. And in this case, payments lower than a new-car lease.

Sometimes, Lutz can slash a customer’s monthly vehicle lease payment by half if he or she opts for a 2- or 3-year-old used car or truck rather than a new one.

Leasing makes up just 5 to 10 percent of the roughly 125 used vehicles Lutz retails per month. But as more vehicles come off lease, his advertising of used-vehicle leasing has picked up steam. And as new-vehicle prices continue to rise, Lutz expects his used-car lease volume to grow.

“Everybody’s sweet spot is a payment much lower than a new-car payment,” said Lutz.

“If I took a new $50,000 2016 Jeep Grand Cherokee Summit and did a 60-month loan, even without the interest, what’s it going to be — $850 a month? Just do the math.” In contrast, he said, a customer might qualify for a 36-month lease on a used 2014 Grand Cherokee Summit for $286 a month.

“People would probably rather have a new car, but reality is you’ve got to fit the payments into your budget.”

Leasing candidates

Vehicles that qualify for leasing at Lutz’s store must be 2011 or newer with less than 100,000 miles on their odometers, said Brad Cooper, a member of Lutz’s sales team. Many have some of their new-vehicle warranties remaining; a few customers purchase extended service contracts, he said.

Cooper and other sales team members sell both new and used vehicles and handle each customer’s entire sales transaction, from start to finance and insurance to delivery.

Used vehicles that have a significant spread between their retail value as calculated by NADA Used Car Guide and the transaction price, which is typically less, are good candidates for leasing, Cooper said.

Vehicles that hold their value well, such as Jeep Wranglers and Grand Cherokees, typically fall into that category, as do expensive vehicles, Lutz said.

“If you have a new $50,000 vehicle, that comes back with an off-lease value at $24,000 after two years, which is typical. And in the next two years it might be worth $14,000. You’ve only got $10,000 worth of lost value” on a used-car lease, Lutz said.

“So expensive cars tend to do well the second time around.”

Many of Lutz’s used-vehicle lease contracts are for 36 months with a limit of 15,000 miles per year. But the lease term can range from 24 to 60 months, and the allowed annual miles can range from 10,000 to 18,000, Cooper added.

Only one lender, Michigan State University Federal Credit Union, finances used-vehicle leases for Lutz’s customers. In contrast, lenders such as U.S. Bank and Chrysler Capital join that credit union in financing the dealership’s new-car lease customers, Cooper said.

After a sales team member inputs vehicle make and model, its mileage, retail value, selling price and other data, an online system operated by Credit Union Leasing of America calculates residual values for the dealership and credit union, Cooper said.

Credit Union Leasing of America is a provider of new- and used-vehicle indirect auto leasing and balloon loan services to consumer lenders, including credit unions.

No down payment is needed to initiate a used-vehicle lease, just the first monthly payment.

“It’s actually easier than a new lease,” Cooper said. But he concedes that “it would be nice to have more lenders do it, so we’d have more options” for used-vehicle lease customers.

Cooper said leasing is popular among his new-car buyers, but used-car customers generally don’t know they are eligible for a lease. So far, most of the dealership’s used-vehicle lease business has been generated by word of mouth by customers and some print ads in local newspapers, he said.

The dealership plans to tout its used-vehicle lease program on its website this summer. Cooper thinks that will help spread the word.

“We’re going to advertise payments on used-car leases,” he said. “That should bring a lot of people to our dealership to get a great lease deal on a used car.”

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Store expects its used-car leasing to grow