Could used car leasing tide over ravenous car buyers?

Dealers nationwide are experiencing or expecting shortages on their new car lots. Some manufacturers have fared better than others, but as a whole, the industry will have fewer new vehicles available for sale than shoppers looking for one. Goldman Sachs is forecasting that the microchip parts shortage will keep inventory levels well below normal through 2022, and Stellantis CEO Carlos Tavares expects the back half of next year to be in better shape.

In the meantime, customers with off-lease units being returned need a vehicle. Service customers who can’t afford – or don’t want to sink money into – repairs on an aging vehicle are looking for a replacement. Local small businesses that liquidated their fleets at the beginning of the pandemic are ramping up production and need more cars. But what can a dealership do when their new car inventory is dwindling?

Some buyers are choosing a short-term solution: a model that’s shy on the options they want, and an over-equipped trim level, or even a model they weren’t really considering altogether. Many shoppers opt to buy a used car rather than wait for their desired new vehicle to be produced in the coming months, but to the same end as an ill-fitting new car.

The pain point is that dissatisfied customers won’t return and their loyalty is at risk. So how can dealerships get customers into a car now, then bring them back when their desired vehicle becomes available? The answer for some could be in short-term used car leasing.

Temporary solution with used car leases

If your dealership has a supply of used cars or has access to a healthy flow of used cars at auction as their prices start to soften, leasing used cars temporarily to new car shoppers could be a solution. To be sure, it effectively puts off the problem until new car inventory resumes. However, it can address the pressing issues.

Ensures retention

Whether you structure an in-house leasing department or choose the services of a third-party lender, the effect is still the same. As a month-to-month lease or a 12 to 18-month program, your shopper can drive a replacement vehicle at a reasonable price. When their desired vehicle becomes available, it’s your dealership they’ll return to since they have a lease they need to return. Even more effective is if you integrate a portion of their payments or deposit that can be credited to their new car purchase.

Lowers used car inventory costs

Today’s elevated wholesale prices can be a tough pill to swallow and, if they continue to drop in the short term, can leave dealers holding inventory with eroding profit margins. Payments from leasing used cars can offset the inventory cost and, when the vehicle returns, it can be resold at a competitive price. It’s crucial to build the deal with accurate – even conservative – residual values.

Promotes sales today

A lack of inventory will be devastating for salespeople in the coming months. With fewer cars to sell, earning commission will be a tough task. By essentially creating a stopgap for your business, these leases can help keep salespeople afloat when the skinny sales season comes.

Used car leasing isn’t for every dealer, and it might require significant credit capacity if it’s kept in-house. For some, it could be a function that helps to keep some sales customers happy in the meantime.

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