As more consumers opt to temporarily extend their leases during the COVID-19 pandemic, it could create “pent-up supply” in the used-vehicle marketplace later in the year, says Brian Murphy, vice-president of research and analytics at Canadian Black Book.
Murphy estimated that between 35,000 and 40,000 leased vehicles were expected to return to the Canadian market each month between March and June.
“We usually talk about pent-up demand, but here we may have some pent-up supply of off-lease vehicles, where come August or September, the theory would be that maybe 100,000 more vehicles show up in the remarketing channels that weren’t there,” Murphy said.
That could create challenges for the industry in the long-term, he said. Far more vehicles have to go through remarketing channels and be retailed, and that glut of supply could cause values to drop.
“It’s kind of a one-two punch where we’re expecting that there will be a lot of supply in the latter parts of summer,” Murphy said.
Robert Karwel, senior manager of automotive practice in Canada at J.D. Power, said automakers could view expiring leases as a “potential bright spot” to help them weather the new-vehicle sales downturn.
“A manufacturer might look at its lease renewal portfolio and say, ‘Hey, we’ve got a bunch of people expiring. We can give them a maximum deal right now, maybe give them a payment deferral and get them into a car and get a few extra sales out the door,’” he said.
Still, accepting off-lease vehicles now could cause headaches for automakers and dealers in the short-term, Karwel said. Because many vehicle auctions are closed, typical remarketing channels might not be available, and it is difficult for companies to store off-lease vehicles en masse, Karwel said.
Automakers and captive finance companies are generally being flexible with customers with leases due to expire during the prolonged COVID-19 pandemic.
Michael Wyant, COO of the Wyant Group in western Canada, said that while some customers are simply dropping off their vehicles and not renewing, many are looking to hold onto their vehicle for a couple months to feel out the economic situation before committing to a new vehicle. He said manufacturers have been offering lease extensions to accommodate those customers.
“We’re all trying to give customers flexibility right now,” he said.
Steve Chipman, CEO of the Birchwood Automotive Group in Winnipeg, said lease extensions are important not only for customers but for dealers, many of whom have closed their showrooms either voluntarily or due to government orders, making new vehicle purchases more difficult or impossible. He said some automakers are offering customers the chance to extend their leases for a number of months but not locking them in for that period, allowing them to return their vehicles whenever they feel comfortable during that timeframe.
“You can keep the car and bring it in when you have the time and the ability to figure this out,” he said.
FCA, LENDER CREATING APP
FCA captive lender SCI Lease Corp,. says it’s extending leases for up to three months. It’s also developing an app that will help customers and dealers deal with lease returns during the pandemic.
“We are allowing for an extension for customers at their current payment for three months. We’ll decide after that whether it needs to be extended past three months,” SCI President Alan Bird told Automotive News Canada. “It still provides the customer with a vehicle for whatever purposes they need it for, whether that’s for groceries, medical or such.
“It also allows the dealer to hold onto that customer until the dealerships are open again and the market is more open to doing business.”
Bird said if a customer wants to return the vehicle during the pandemic, they can do so if their dealership is open.
“If a dealership is closed but there is a dealer in the surrounding area, we would direct them to go to one of the other dealers that is accepting [vehicles],” Bird said.
SCI and FCA are working together to develop an app that would allow customers to ground their leased vehicle digitally, without physically returning it to the dealership.
A lessee would take pictures of the interior and exterior, note the kilometres and upload it all through an app. They would then leave the car in their driveway until dealers reopen or the customer is more comfortable venturing out.
Otherwise, “when the dealership does become open, we’d ask the customer to return the vehicle at that time,” Bird said.
Volkswagen Canada spokesman Thomas Tetzlaff said the company is offering lease extensions, too, but handles each request on a case-by-case basis. Customers are instructed to call VW Canada’s lease end department if they’re concerned.
Honda Canada is also offering lease extensions or working with customers on ways to safely return vehicles during the pandemic.
“If they are isolated, sick, or simply fear leaving the house because they're obeying a stay at home recommendation or physical distancing guidelines, or if their local dealership is closed, we encourage them to call or email us to talk about their situation,” Honda Canada spokesman John Bordignon said in an email.