Off-lease trucks race toward market in 2018

A flood of off-lease 2015 light trucks, including, clockwise from top, the Toyota Tacoma, GMC Canyon and Chevrolet Colorado, is expected in '18.

The wave of off-lease vehicles due to hit the used market in 2018 is the biggest — and most truck-heavy — yet, bringing fresh opportunities and challenges to the marketplace.

Analysts who track U.S. retail auto sales and lease penetration rates say that the vast majority of leases that originated in 2015 will end in 2018 and include notably more crossovers, SUVs and high-end models.

By most counts, 3.9 million light vehicles are expected to come off leases in 2018, roughly 300,000 more than in 2017.

Newer vehicles

The used-vehicle market already has more late-model, lower-mileage units — and fewer of the 5- to 8-year-old models that basic transportation buyers go for — said Jonathan Smoke, Cox Automotive's chief economist. That will favor franchised dealerships over independents.

"All the growth in used volume is [in vehicles] less than four years old," Smoke said this month at the National Auto Auction Association-Used Car Week gatherings in La Quinta, Calif. "There are new rules we need to learn."

In 2018, franchised auto dealers will have first pick of the plentiful vehicles returning off lease from years of record sales and high leasing penetration, he said. But independent retailers specializing in 5- to 8-year-old vehicles will continue to face lean supplies, simply because fewer new vehicles were sold in 2010-13.

The flood of late-model used cars will continue. Patrick Brennan, senior vice president for Cox Automotive, said the growth in off-lease vehicles will taper off to about 300,000 in 2018 from 500,000 additional vehicles in 2017.

"The surge of off-lease vehicles is starting to slow but we're not at peak yet," he said. But because U.S. auto sales set records in 2015 and 2016 and leasing penetration rose to a peak of more than 30 percent in 2016, he doesn't expect off-lease volumes to crest until hitting 4.3 million in 2020.

Lower prices

The increased supply will drive used-vehicle prices 2 to 3 percent lower in 2018, warned Tom Kontos, chief economist for KAR Auction Services.

"Used cars are getting younger," Kontos said. "If we hold consistent on comparing similar mix and mileage, average prices will decline. There may be some regional differences but as volumes grow, that depresses prices."

And next year, light-truck prices will be affected more than cars. "There's been a mismatch" in the used marketplace because the supply of used trucks returning has lagged behind consumers' swing away from sedans, coupes and hatchbacks, Kontos said.

"But 2015 was truck-heavy" in new-vehicle sales, and the return of those vehicles to the market "will start to satisfy demand," he said. "There will be pressure on truck prices next year."

AutoBuy CEO Mark Maida said he has spotted a developing shortage of inexpensive vehicles.

"Dealers are clamoring for vehicles they can retail for $20,000," he said. "Many used-car buyers are value oriented and they really want to keep their monthly payments under $350."

That's a key customer base for his Florida business, which buys used vehicles from consumers and resells them directly or at auction.

Edmunds' third-quarter used-vehicle report said the sheer volume of 3-year-old vehicles has reduced used vehicles' average odometer mileage 14 percent to 52,648 in the third quarter from year-earlier levels.

Faster selling

The newer, low-mileage used vehicles carry high prices rivaling those of new ones, and the situation will likely worsen.

"High levels of lease returns coupled with increasing stringent mileage limits will feed an expanding pool of low-mileage used-vehicle inventories that have proven to have a limited buying audience," Edmunds said.

Ivan Drury, senior manager of analytics development at Edmunds, said older used vehicles with more mileage and lower prices are selling faster than low-mileage newer models. In the third quarter, 2010 models sold in an average 34 days, 2013s in 42 days and 2016s in 51 days, Edmunds data showed.

Next year's influx will look different, Drury said. He expects 2018 off-lease returns to be less car-heavy and grow 13 percent from 2017.

Drury's estimates combined retail sales and lease penetration for each of Edmunds' light-vehicle segments, subtracting wrecked vehicles and those bought by lessees at the end of the lease rather than returned.

The 2018 differences are dramatic, ranging from a 20 percent decline in subcompact cars to a more than doubling of compact truck returns to 37,000.

The three luxury SUV segments — entry, midrange and premium — will each jump more than 30 percent next year. So will compact crossovers, rising 31 percent or 120,000 vehicles to more than a half million.

Individual light-truck segments all will grow in 2018. Off-lease pickups will grow 30 percent to 279,000 vehicles, SUVs 27 percent to 561,000 and crossovers 25 percent to remain the largest segment at 939,000.

Fewer cars

All five segments returning fewer vehicles in 2018 than in 2017 are cars. As a group, cars coming off lease will gain 2 percent to 1,848,000. That cuts the car share of off-lease returns to 50 percent from 55 percent in 2017.

Said Drury: "We're starting to see an off-lease vehicle mix that more closely resembles what today's consumers are buying."