Car renters advised to buy back as stocks dwindle and prices rise

The double blow of record new vehicle prices and shortages due to the global semiconductor chip shortage may keep some buyers in their corner, but the situation presents a lucrative opportunity for those whose leases are about to fall. to end.

Indeed, experts say these unusual conditions make it a great time to buy an expiring lease and keep your current vehicle rather than handing it in and trying to find something new. The reasons are twofold: thin selection and rising vehicle values.

“In your monthly rental payment, you paid for depreciation that never happened,” Pat Ryan, founder and CEO of vehicle research and insurance market app CoPilot, told . “You are probably sitting on incredible profits that you have paid for. ”

As an example, Ryan notes that his buyout of a leased 2019 Chevrolet Tahoe would cost $ 17,000 less than the SUV is worth today, which the dealership, he said, set at $ 45,000. .

“My monthly payment paid off for a depreciation that never happened,” he said, noting that he was actually sitting on a big profit. So by buying out the lease, “that was the only way I could have recovered for overpaying.” If I turn this car over to my leasing company or the dealership I turn it over to, I will get this profit and there is no way for me to get my money back.

The CoPilot site offers an online tool to help tenants make a decision on their next move.

CoPilot Ryan Assessment Squares with analysis by Eric Ibara, Cox Automotive Director of Data Strategy. He notes that since vehicles maturing in 2021 were typically leased in 2018, their residual values ​​would be significantly lower than current market values, due to current inventory shortages.

“If the purchase value of the vehicle is based on its 2018 residual value, which it should be, consumers can save thousands of dollars if they stay in their 2018 model year vehicle rather than buy a 2021 or 2022 model year version, and any current cash surrender value is likely less than a used retail vehicle of similar pedigree, ”Ibara said in remarks emailed to Forbes. com.

Shift the current opportunity to an upward trajectory for vehicle prices that began before the onset of the Covid-19 pandemic in early 2020 and has yet to decline with high demand, low inventories and rare incentives.

In November, new vehicle prices rose 25% year-over-year to nearly $ 47,000 and used vehicle prices jumped more than 34% to around $ 31,000, according to Kevin Roberts, director. from Industry Insights & Analytics on the leading CarGurus vehicle research and buying site. com.

The second main reason to stick with a current vehicle is the lack of selection caused by production disruptions and caused by the shortage of semiconductors.

“OEMs (automakers) are moving to more cost effective vehicles and more cost effective versions,” Roberts said.

According to data from CarGurus, inventories of new vehicles in November fell 4.9% from October and 72.7% year-on-year. The decline in used vehicles was not so severe, declining slightly to 1.4% in October and 11.3% year-on-year.

Not only are fewer vehicles produced, those coming off the line may not include the chip-dependent features that consumers want. Additionally, the wait for the right vehicle can be anywhere from three to six months.

It all boils down to sticking to the status quo rather than paying more for less.

“The rental car you are returning may have features like a wireless charger or heated seats that you may have gotten on your 2019 that are not available on your 2022 car due to the chip shortage,” he said. Ryan said. “Not only do you wait a long time, but there is a real risk that you will end up with a less well-equipped car than the one you rented three years ago. On top of that, you will be paying record prices, usually stickers or more stickers.

This is if you are lucky enough to find the vehicle in your sights. Those with the most requested features don’t stay on dealership lots for long. Where new vehicles would typically spend a few months on the market, the number of “days on the market” fell to around 45 in November, from 80 in November 2020.

Some don’t even go that far.

“We’ve seen OEMs start posting on websites not only what vehicles are available on dealership lots, but what vehicles are in transit, what vehicles are being built and these vehicles are purchased before they reach the lots. dealers, “said Roberts

Overall, rental as a percentage of sales is down this year. According to Ryan, in the first quarter of 2019, leasing represented 33.4% of the market while this proportion fell to 26% in the second quarter of this year. Part of the reason, he said, is that low inventories mean automakers aren’t subsidizing leases to boost sales numbers. There just isn’t a lot of metal to move.

Eric Ibara of Cox Auto also notes that Manheim’s supply of non-rental vehicles at wholesale auctions is “significantly lower” this year. He speculates that this is because more consumers are buying out their leases or dealerships are not auctioning off-lease vehicles, a practice known as “grounding.”

As automakers discover new sources of semiconductor chips, production is gradually increasing. But for those who are currently renting, the best strategies are making or planning their next moves right now.

“If an owner has a lease that is ending soon (in the next six months) and intends to lease another vehicle or purchase another vehicle, it would be wise to start working with the dealership as soon as possible.” , Ibara warned. “Getting a replacement vehicle will take some time. In this environment, no one should expect to end a lease and easily find a replacement car. It’s a market that rewards planning.

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