Introduction:

• Auto leasing has significantly impacted the used car market over the past few years.
• Used cars don't come from a "used car factory"—they are sourced mainly from trade-ins and auctions.

Sources of Used Cars for Dealers:

• Trade-ins: Customers who trade in old cars for new ones provide a small portion of used car inventory.
  • Typically, dealers receive fewer trade-ins than the number of new cars they sell.
  • Some trade-ins are not suitable for resale (e.g., older, high-mileage, or mismatched cars).
• Auctions: The bulk of used car inventory comes from car auctions.
  • Manheim Auctions: One of the largest auction companies where dealers can bid on used cars.
  • Sources of Auction Cars: Rental cars (e.g., from companies like Hertz, Enterprise, Avis, Budget) and off-lease vehicles (cars returned at the end of a lease).

The Decline of Leasing and Its Impact:

• Historically, auto leasing accounted for a significant portion of new car purchases, and off-lease vehicles were a vital source of high-quality used cars.
• With fewer people leasing cars today, fewer off-lease vehicles are entering the used car market.
• The shift away from leasing has led to a shortage of desirable used cars, reducing the overall quality of available inventory.

Rental Cars vs. Off-Lease Cars:

• Rental Cars: Typically less well-maintained and with more wear and tear due to multiple drivers.
• Off-Lease Cars: Generally in better condition, as they are maintained by their original owners who typically take better care of them.

The Market Shift:

• Fewer off-lease cars mean dealers rely more on rental cars, which are now in higher demand and thus more expensive.
• Off-lease cars, which were once abundant, are now rare and highly valuable.

Lease Buyouts and Their Effects:

• In the past, lease buyout options were often set higher than the actual car value.
• With the rise in used car values, many customers are opting to buy out their leases, keeping cars off the market.
• The surge in buyouts has further reduced available used car inventory.

Decreased Popularity of Leasing:

• The used car market turmoil and the competitive new car market have reduced the appeal of leasing.
• Fewer leasing options are available, and those who do lease are less likely to return their cars to the market.

The Bigger Picture:

• The combination of fewer leased vehicles and increased buyouts has left a void in quality used car inventory.
• Buyers looking for high-quality used cars are now forced to purchase new vehicles, driving up prices and creating a tough market for both used and new car buyers.