That is exactly my thought…it would seem there are a ton of 2 and 3 year old CPO vehicles that could be available for lease for 2-3 years, still be under warranty and without the huge depreciation having already occurred.
I purchased a CPO MDX for 31k (in 2013…it is a 2010 model) I’ve been paying 528$ per month for 60 months. I would much rather lease for 24-36 months st 300 per month (or less)
I’m looking at 2014-5 BMW X5 right now and prices are 35k give or take. Would love to lease that car for 24 months for 325 per month. Something like that.
@BMW_Dave do you guys do leases of CPO BMW’s? You’ve got a 2014 BMW X5 xdrive 35d with 37k miles listed at 37,811. If so, How can you structure this lease?
I wish I could say it was good Andrew but CPO leases suck! It’s all dollar based residuals and this car ends up being $615.88 plus tax with $2,091.50 drive offs. Here’s what BMW says the programs are on that specific car…
Leasing pre-owned very rarely works well unless you get the new car progams which means it has to be a loaner with less than 5k miles. That’s the sweet spot.
It’s not untapped it’s unprofitable. The lease would probably end up costing more than buying a used car for many reasons. The residual would be horrible, the money factor will never be subsidized, the warranty would be expensive. Look at all the items that would have questionable wear and tear on them. Could some cars lease well used? Maybe something like a Lexus LS, but most cars would not be worth it.
In short, the cost of lending increases as the age of the depreciating asset increases. This point was noted earlier in the thread for purchasing used cars. But it takes on a new dimension when it comes to leasing a used car/SUV.
Leasing a vehicle requires two willing participants. What is mostly discussed in this thread is how, in theory, leasing a pre-owned vehicle should cost less than a comparable new one because a pre-owned vehicle costs less to purchase. That is a consumer-based approach.
The lender-side of things (as far as leasing a pre-owned vehicle goes) isn’t well explained so far in this thread (nobody’s fault, just saying). Generally speaking, they are the primary reasons why leasing a pre-owned vehicle will not work until cars are more reliable and/or retain more of their values as the years pass.
For a lease, the bank (that owns the leased car) is the one taking the risk of the depreciation of the asset. On a new car, that risk is primarily captured by depreciation. One caveat is that the bank is also at risk of the car/SUV getting into an accident that shows up on CarFax. I’ve heard the rule of thumb is that a CarFax incident can reduce the value of a pre-owned vehicle by 10 to 15 percent. The bank takes that risk on the chin, not the consumer.
Leasing a two- or three- year old car adds more risk to the bank. First, the bank will own the car/SUV at the end of six years. While the depreciation curve tends to normalize during the secondary period (i.e., maybe it goes from 56% to 35% as opposed to from 100% to 56%), the risk that a bank will own a bunch of six-year old cars/SUVs also goes up. (Also worth noting is the inevitable repairs that become necessary as a vehicle moves outside the warranty period. That risk is mostly on the bank because the bank is going to assume that most people don’t care about routine maintenance.) This results in a bank (that engages in pre-owned leasing) to mark up the risk factor (i.e., the money factor) for used leases to ensure that it makes as much money as possible before being stuck with six-year old vehicles. The bank probably will have to send those vehicles to auction to be sold for pennies on the dollar; thus, minimizing the bank’s potential profit on any particular used vehicle lease.
Of course, there are some pilot and/or limited programs that offer used leasing options that are somewhat subsidized, but those are probably just to reduce the glut of off-lease cars at any given moment in time.
Used leasing has been around since the 60s but no one has figured out the way to make it all pencil into a decent price for the consumer (compared to a used loan payment or a new lease payment) and with a relatively low risk level for the lender. The current RV providers (ALG, Black Book, Edmunds, KBB) focus the majority of their analytic efforts on new car RV accuracy with broad dollar RVs on the used side and generic mileage adjustment tables.
Occasionally a program will enter the market to offer a subvened rate on used/CPO leasing but it doesn’t always translate to an attractive payment because of a low RV.
Setting RVs on new vehicles is a lot simpler than used because everything starts out with close to 0 miles and perfect condition. With used vehicles the mileage at inception is the only relatively easy thing to adjust for. Cosmetic and powertrain condition are also 2 big variables that can stress RV modeling so CPO was created to help alleviate this through rigorous checks and reconditioning to become certified.
The CPO market has matured significantly but 95% of those end up being purchased instead of leases for the reasons above. Many captives require a used vehicle to be certified in order to qualify for their lease program.
Dealers buy low through trade in or at auction and sell as high as possible. Tools like vAuto are often used to help the dealer price their pre owned inventory at the right profit/sales velocity level but there aren’t any tools to do this for the leasing side of pre owned. Used buyers are also less likely than new buyers to bring their vehicle to the dealership for service so there is less profit for the dealer in that part of the customer lifecycle.
I think you can expect to see some lenders in the near term figure out which niche vehicles (specific ages and mileage ranges) make sense for used/CPO leasing to make the payment and risk levels line up. I guarantee it won’t be the same models that score well on the new car lease hackr scoring system unless the OEMs decide to divert incentive money to subvene the used lease MFs.
Few, if any, OEM/Captive relationships are true mutually beneficial relationships. To maximize total profitability it makes a lot of sense to look at used leasing as a way to relieve pressure from increased used supply. This can help increase used prices which in turn help support increased new car RVs and ultimately helping the OEM sell more new cars.
I was looking at the app Fair that was recommended earlier in the thread. Interesting in that the term lengths are flexible and routine maintenance is included.
How much is routine maintenance worth for a BMW from miles 36k thru 72k? Knowing that would help you compare a new vs CPO lease. But i do agree prices are too high to make me want to get them when you can have a new one for similar monthly outlay
Looks like they only have Fords + Lincolns right now, so I will pass. Their prices include maintenance, warranty, and insurance. Start up price looks to only be @ $99 + first month, and what is even more interesting is the longer you keep it, the more your monthly price drops. If they expand what brands they offer I may reconsider.
I hear you. The difference being though that their price includes insurance, and you are only locked in for 30 days. To me that would be the advantage here, short term lease. I think that is the only thing that makes Fair appealing to me as well.
