Expect Dip in Off-Lease Availability, Rise in Wholesale CPO Prices

Drop in lease returns will likely drive up price of late-model used vehicles, says NADA’s Patrick Manzi.

Jim Henry, Contributor

April 5, 2024

3 Min Read
Experts predict CPO vehicle availability will dip.Getty Images

Relatively scarce, 3-year-old off-lease used vehicles — the primary source of profitable, certified pre-owned (CPO) vehicles for dealers — are about to become even more scarce as the third anniversary of a sharp and long-lasting drop in lease penetration approaches, in second-half 2024.

“We are on the cusp of a cliff in lease maturities,” says Jonathan Smoke, chief economist for Atlanta-based Cox Automotive, during the recent Q1 2024 Cox Automotive Industry Insights and Sales Forecast Call. Scarcity is likely to drive up the price of CPO units for dealers at wholesale and for customers at retail.

One result of the scarcity of late model used cars is that some manufacturers have made older used vehicles eligible for their CPO programs.

The “certified” part of CPO means vehicles are reconditioned to check all the boxes on a multi-point inspection. The buyer receives whatever remains of the original owner’s new-car warranty, plus a factory-backed, used-car warranty.

That “cliff” Smoke mentions above about lease returns is a result of the calendar. The acute shortage of new vehicles during the recent past began to affect new-product availability around May 2021. It was caused by several factors including a hangover effect of the pandemic, as well as a shortage of computer chips and other supply-chain bottlenecks.

With new vehicles in high demand and short supply during the pandemic, automakers greatly reduced spending on incentives, including lease incentives. As lease incentives fell, lease penetration dipped, most recently to around 20% in 2023. The historical lease penetration rate pre-pandemic was 30%-plus.

Lease penetration has begun to recover, especially since some electric vehicles must be leased to qualify for tax incentives for buying an EV. Cox expects lease share for the total market, not just EVs, to increase to about 23% in 2024.

That helps the lease-return situation in three years because leases typically average 36 months. But that 36-month average also means that in May 2024, a drop in off-lease vehicles will begin, corresponding to the drop in lease originations starting in May 2021.

According to data from J.D. Power, lease maturities were about 3.2 million in 2023. In the first half of 2024, they are forecast to be about 1.8 million. That’s an increase of about 21% vs. a year ago. That return volume in the first half of 2024 is also starting to get in the ballpark for historical off-lease volumes, which topped 4 million annually.

At the recent New York Auto Forum, J.D. Power’s Thomas King says he expects lease volume will change during the second half of 2024. Lease maturities are expected to fall to around 1.3 million in the second half, down 26% vs. a year ago, says King, J.D. Power’s president of the Data & Analytics Division and chief product officer.

Another speaker at the Auto Forum, sponsored by J.D. Power, the National Automobile Dealers Assn. and the Greater New York Auto Dealers Assn. Also at the Auto Forum is Patrick Manzi, NADA chief economist, who agrees the coming drop in lease returns is likely to drive prices up for late-model used vehicles.

“The prices of those are going to be elevated,” Manzi says, and that’s going to limit affordable choices for consumers who can’t afford new vehicles.



About the Author(s)

Jim Henry


Jim Henry is a freelance writer and editor, a veteran reporter on the auto retail beat, with decades of experience writing for Automotive News, WardsAuto, Forbes.com, and others. He's an alumnus of the University of North Carolina - Chapel Hill, where he was a Morehead-Cain Scholar. 

Subscribe to a WardsAuto newsletter today!
Get the latest automotive news delivered daily or weekly. With 5 newsletters to choose from, each curated by our Editors, you can decide what matters to you most.

You May Also Like