- More consumers than usual bought out their vehicle leases during the pandemic.
- Looking for a new car meant inventory and pricing battles, so they kept the ones they had.
All sorts of car-buying dynamics changed as a result of the pandemic. The way drivers acted when their car leases ended is no exception.
For more than two years, car-buyers faced low vehicle inventory and high new and used car prices. They might have gone to a dealership and not been able to find what they wanted, or paid more than they wanted for something that had fewer features than they needed.
As a result, many consumers with ending leases decided to buy out their cars instead of returning them and facing the markups and limited options of a strapped market.
Plus, a portion bought their car hoping to earn a nice chunk of change if they flipped it quickly, given how much the vehicle might have appreciated.
In general, a lot of folks who would have turned their leased vehicles back in, didn't, and leasing habits continue to shift. In 2025, there will be 30% fewer lease maturities (or vehicles coming off a lease contract) than in 2022, according to Cox Automotive estimates. That's about 1.1 million fewer cars entering the used market.
In 2019, about 30% of all new vehicle retail sales were leases versus being bought outright. Now it's closer to 15 to 20%, Cox senior economist Charlie Chesbrough said at a recent Federal Reserve Bank of Chicago annual auto insights symposium in Detroit. All of those dynamics, combined with high used vehicle prices, spell trouble.
"All of this really means that the normal supply feeds into the used vehicle market are down substantially," he said. "This is going to have huge ramifications for the used vehicle market over the next couple years."
Car-buyers face challenges in the used vehicle space
Used vehicle prices have been through the roof for some time. They were up 45% in the 12 months ending June 2021.
Prices have been decreasing slightly, with the average cost at about $27,143 in December, per Cox.
But the dynamic of fewer leased vehicles coming into play for consumers compounds the impact of these hefty price tags.
Over the next three years, there will be 2.5 million fewer vehicles that would have come off a lease than they were from 2020 to 2022.
Fewer used vehicles means inventory problems could remain — and thus, pricing battles, especially next year and in 2025.
"People are looking for affordability, they're looking for a way to get a newish-type vehicle, there's not going to be many of them out there," Chesbrough said. "This is an opportunity for the manufacturers to get more aggressive on pricing if they want to really boost sales."
Leasing changes aren't the only impact on the used car market
This decrease in recently turned-in leases as used inventory isn't the only shift. High costs across the board have cut some consumers out of the market entirely, and in general, many are just keeping the cars they have longer, and pouring more money into maintenance.
That, too, influences what will end up in the market. It won't be two- or three-year-old, lower-mileage former leases — it's likely to be high-mileage, much older vehicles. The average age of a car in the US hit a peak of 12.2 years in 2022, per S&P Global Mobility.