Car Dealers Anticipate Lease Returns To Dry Up

The number of cars leased since 2021 has gone down, which could set up another major supply problem as lease returns dry up.

Fewer used cars coming off lease was one of the biggest supply challenges after COVID-19. Leasing of new cars used to be one in three cars sold, now it’s one in six.

Newly Stabilized Market Faces Challenges

It’s no secret that the market for used cars has been challenging in the last few years. Many people chose to keep their leases, which quickly shrank the amount of used cars available and made prices skyrocket. The new car market is finally stabilizing with dealer inventories mostly back to normal.

However, car dealers may soon have to navigate around some obstacles in the future as another side effect of the pandemic years comes to pass. Lease returns are an important factor in certified pre-owned programs and a big part of new vehicle sales. These returns are expected to go down drastically in the next few years.

According to industry experts, the pool of used cars won’t return to previous levels until at least the end of the decade. There were fewer leased cars in 2021, which means fewer people returning in 2024, and that means 2027 still won’t be normal.

Impacts On Customer Retention

One area that’s a serious consideration for dealers and financing companies is customer retention. Leases set up a favorable situation where customers move from one lease to the next and do so at the same dealership. Leasing rates have gone down, largely due to increased demand. Many buyers were looking to buy new cars rather than lease.

Stimulus checks also helped push buyers into purchasing a new car rather than leasing one. Low dealer inventories meant fewer incentives, which would typically push customers toward leasing. However, other factors stood in the way, such as high interest rates.

The final nail in the leasing coffin was the increased value of used cars. Car leases became more expensive and customers with leases were more likely to keep their cars thanks to the increased value. This combination means that the usual lease table has been broken.

2025 Could See the Biggest Drop in Used Cars

Unfortunately, the used car market is about to take another hit. Three-year-old lease returns have been the backbone of the used market for a long time. The drop in lease returns could make used cars again become more scarce and higher priced. Fewer lease returns also means fewer vehicles for certification.

The auto industry needs to find strategies to retain customers who would lease and to keep lease returns stable. Prices for used cars are still going down, but the lack of lease returns will likely keep them from going down too far.

Ultimately, the industry will have to find a way to adapt to changing supply chain dynamics to find success in the coming years. It’s likely to be a while before the market for used cars approaches previous levels of normalcy.