Whatever happened to used-car leasing?

After new-car leasing exploded in the 1990s, many people predicted used-vehicle leasing would be the next big bang. It hasn't been a dud. But nor has it met those great expectations. Now some experts wonder if it ever will. I'm not sure it's going to take off like new-car leasing did, says William Jensen, senior vice president and manager of automotive services for Bank One. There are lots of reasons

After new-car leasing exploded in the 1990s, many people predicted used-vehicle leasing would be the next big bang.

It hasn't been a dud. But nor has it met those great expectations. Now some experts wonder if it ever will.

“I'm not sure it's going to take off like new-car leasing did,” says William Jensen, senior vice president and manager of automotive services for Bank One.

There are lots of reasons for that.

Monthly payments aren't much different between new and used leasing, and “there aren't nearly as many incentives on used vehicles,” says Jensen.

Demographics figure in, too.

“Who leases a used vehicle?” says Jensen. “We've waited for new-car lessees to switch to used. But they're aspiring to new cars. Used leasing is for people looking for a third car or a car for their kid. Or it's for someone in a mid-life crisis and wants a Corvette.”

Financially, many people shopping for a leased used vehicle are credit risks. “That limits opportunities for growth and dealer involvement,” says Jensen.

Marketing is another factor.

“When you look at mass marketing today, new cars are the name of the game,” says Jensen. “I don't see how used-car leasing can bloom to anywhere what new-car leasing enjoys.”

Further, many dealerships show little interest in leasing used vehicles or training their sales staffs on how best to do it.

Nor have manufacturers “stepped up to training sales people on used leasing,” Valerie Torphy, chief auto underwriter for RVI Group, a residual insurer, tells the Conference of Automotive Remarketing.

The market also is seeing a “dramatic” shift to longer lease terms, according to Craig Carrow, strategies director for Remarketing Services of America.

Two-year leases are giving way to three- and four-year leases. But some consumers balk at leasing a used vehicle that long, envisioning wear-and-tear problems as the car ages.

“We'll see vehicles coming off lease for the first time with 50,000 miles,” says Carrow. “It will be more expensive to get these cars in certified shape for releasing.” Still, there is a market for used-vehicle leasing, if only a niche. It's touted as a way to remarket vehicles coming off lease for the first time. It currently accounts for 5% of overall automotive leasing, 15% at Bank One, according to Jensen.

“We're seeing slow growth,” he says, “It's more an accommodation product. But it's not bad. It's good for those who sell correctly.”

Bank One is starting to see the first returns of 36-month leased used vehicles. “That will give us some interesting data,” says Jensen.

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