Used-vehicle leases have trouble competing, executive says

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Used leasing “is having a tougher time competing” with the deals offered by new-vehicle leases and financing, in part due to longer terms on new-vehicle loans than some optimists predicted, says Scott Fontaine, Ally’s senior director of automotive valuations. Photo credit: DAVID PHILLIPS

LAS VEGAS — Auto remarketers looking to tame rising stocks of off-lease vehicles through used leasing largely had their hopes dashed at an industry event here this week.

The discussion at the National Remarketing Conference appeared promising. At least two speakers indicated they were intrigued by the prospect of used-vehicle leasing and were waiting to hear what Ally Financial’s Scott Fontaine would say. His topic: “Automotive valuations and pre-owned leasing.”

But Fontaine, on Tuesday, chiefly dispelled the notion that used leasing would help the industry absorb and market a rising volume of used vehicles.

After going over the influences that have begun to push used-vehicle prices lower, led by rising supply, Fontaine, Ally’s senior director of automotive valuations, lowered the boom. “Used-car leasing has not taken off the way some expected,” he said. Used leasing “is having a tougher time competing” with the deals offered by new-vehicle leases and financing, in part due to longer terms on new-vehicle loans than the optimists had foreseen.

With automakers incentivizing their new-vehicle sales and leases, and promoting those deals heavily, used-vehicle leasing has trouble drawing any attention, much less offering a better monthly payment.

Asked afterward if any segments are showing better-than-average results from used leasing, Fontaine said the data is too skimpy to reach any positive conclusions. “A lot of used leasing is really demo cars,” he added. “The title doesn’t change hands.”

Other speakers also cast doubt on how big used leasing could become. Jonathan Banks, executive automotive analyst at NADA Used Car Guide, noted that leasing’s advantage is often seen as a way to avoid the steep vehicle depreciation seen when a new car is purchased. But the depreciation curve on a used vehicle is “still steep” at between 48 and 60 months, he said.

“Used-vehicle leasing is a good tool,” Banks said. But using it correctly requires a good understanding of residual values and, he added, a commitment not to subsidize those leases too much.

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Used-vehicle leases have trouble competing, executive says