SANTA MONICA, Calif.—The used car market is flush with off-lease vehicles—many from certified pre-owned (CPO) programs—that are coming back to dealerships.
That is expected to drive up the average used-car transaction price this year and therefore lengthen used loan terms, but also add to the number of used cars on the market, increasing the slide in overall used values, according to Edmunds.com’s latest Used Car Report.
The trend for a high number of off-lease vehicles to hit the market was noticeable last year and now will be even more pronounced since 27.1% more cars were sold via three-year leases in 2013 compared with 2012, Edmunds.com stated.
“Interestingly, some of the less popular segments in today’s market were the most popular leased vehicles in 2013: midsize cars, compact cars and entry luxury cars—first, second and fourth in lease volume for 2013, respectively,” the company explained.
On the other hand, the very desirable compact crossover SUVs and midsize crossover SUVs ranked third and fifth in lease volume in 2013.
Many off-lease cars are being sold through CPO programs, which list for an average of about $1,500 more per car than a traditional used car.
“The high volume of CPOs in the market mix is helping to boost the industry average used car transaction price,” Edmunds.com noted. “In 2015 at dealerships the average used car sold for a record of $18,552 and we anticipate that the average will remain high in 2016 due to the CPO trend mentioned above and consumer interest in more expensive vehicles including trucks and SUVs.”
To help compensate for the increasing transaction price—especially for trucks and SUVs—Edmunds.com projects that loan term lengths will increase as most used car buyers prefer to make loan payments of less than $400 per month.
Edmunds.com added that used car bargain hunters may benefit from another market trend: much near-new inventory is coming from car rental agencies, whose vehicles are generally in service for a year or two and then dropped back into the marketplace. Rental agencies purchased about 1.8 million units in each of the years 2012, 2013 and 2014, and increased their purchases to about two million units in 2015.
“Most former rentals are concentrated within the segments of midsize car, compact car, subcompact car and large car, and are often distinctly different in terms of content and mileage from off-lease or consumer trade-ins,” Edmunds.com said. “Based on the influx of this inventory and the expectation of low gas prices, we predict that average prices will continue to fall for these segments, which is good news for shoppers.”