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DEALERS and people leasing vehicles face a conundrum as the combination of COVID-19 and the global shortage of semiconductor chips has seemingly produced a financial bonus for people ending their vehicle leases.

The rare side effects of the pandemic have directly led to new-car shortages that impacted on used-car supply, triggering the ballooning prices of second-hand vehicles.

Now, lease buy-out prices struck three to five years ago have become well short of the actual prices on the used market, leading to people considering buying out their leases and reselling their vehicles. The price difference, of course, goes to the motorist exiting the lease.

Steve Bragg

Pitcher Partners Motor Industry Lead Steven Bragg said that the current used vehicle market “clearly wasn’t contemplated when the residual values were set for these leases three to five years ago.”

“It opens an opportunity for consumers with leased vehicles to take advantage of the used car valuation arbitrage to pocket a decent gain in some instances,” he told GoAutoNews Premium.

The situation is not peculiar to Australia. In the US, Cox Automotive principal auto analyst Michelle Krebs said the position there was the same and that lease buyout prices were set three years ago “when they never thought used car prices would be this high”.

Many lease customers are now buying out their leases and then immediately reselling the vehicles. This could be because the cash difference is alluring or because it may be no longer attractive for the owner to buy out the lease.

But Mr Bragg said there are important considerations.

He said consumers with leased vehicles need to keep in mind:

  • Read your lease and find the residual value and be sure to check what the rules are for a buyout. They can vary from lender to lender.
  • The residual usually isn’t the same as the buyout price, especially if you’re looking to end the lease early. Best to contact the lender and request the buyout price.
  • Look up the vehicle’s current market value using online pricing guides, like the Kelley Blue Book or Glasses, or used car services with online pricing guides, such as Carsales, Easyauto123, Autotrader, Automundo and Cars24.
  • Check for any regulations for buying out leases. In some states, you might get stuck paying hefty taxes or fees.
  • Once you have an idea of the market value of your car, subtract from that all costs to buy it out including any taxes or fees and come up with a final number.
  • Factor in potential paperwork and other hassles in registration issues in transferring after selling your car.
  • Importantly, remember that buying or leasing a replacement vehicle could be more costly and difficult right now with the inflated prices in the market.

Mr Bragg added that the used-car price surge “is here to stay”.

“Consumers on leases need to keep this in mind for the next several years to see if there is an opportunity to buy out their lease at a cheaper rate than purchasing the same vehicle in the market,” he said.

“For dealers looking to source used car stock, they need to consider all options and be open to changing the game.”

By Neil Dowling