If you want get a sense of why Ally Financial decided to roll out a product specifically for used-car leasing, consider the statistics from Experian Automotive, says Tim Russi, Ally’s president of auto finance.

You may find that the numbers on used leases are a bit disproportional to consumer demand.

In the fourth quarter of last year, 96.2 percent of leases were for new cars, Experian said, leaving just 3.8 percent for used.

But here’s the thing: used cars represented nearly 63 percent of cars financed last quarter, according to Experian’s State of the Auto Finance Market report for Q4.  

Granted, finance penetration is higher in new (85.9 percent) than used (54.7 percent) and the used-car market is much larger than the new-car market, but that doesn’t necessarily belie the demand. Used leasing, perhaps, is just an underserved option.

More than a third of new cars financed last quarter were new, Experian data shows.

So, Russi asks, why aren’t we seeing the same in used?

“As we looked at that, the answer that came back was, ‘there’s a lack of providers for a used solution,’” Russi said Thursday in a phone interview about the Ally Pre-owned SmartLease product launched last week.

“We saw it as a good opportunity to satisfy what we think is a consumer preference,” Russi continued. “There’s no reason why used can’t be as big as new — in fact, I would suggest it could actually have a larger penetration than new, just because the pool of financing in used is larger.”

But used leasing is a pool in which many providers, frankly, haven’t been willing to swim.

Captive mindset

Asked why there has been a lack of used leasing providers in the past, Russi pointed out that new-car leasing has predominantly been done by captives, who by nature are set up to facilitate new-car sales, for the most part. 

That’s not to say they don’t offer used leasing; many do, as this November news story from Edmunds.com senior editor Matt Jones points out.

It’s just not necessarily a huge part of their business.

But used-car leasing is a huge opportunity for Ally.

“Then you marry that up with the fact that we’ve got the expertise and tools to manage leasing, and have historically been a large lessor,” Russi said. “Managing the residual risk is a core capability we have, where others may not have that capability.”

Remarketing, wholesale implications

Along those same line of management capabilities is remarketing the car once the lease is over. Enter Ally’s SmartAuction product.

With SmartLease, the consumer would get first crack at buying the car when the used lease ends. If the grounding dealer then doesn’t bite, the car goes through SmartAuction.

Then there’s the other side of that online wholesale environment: dealers bidding on cars.

When these folks are searching for inventory on SmartAuction, there will be signage, so to speak, to let dealers know which cars are eligible for SmartLease, Russi said. 

The leasing program is currently offered on more than 35 models, with plans to expand “where there’s a meaningful payment differential” for the consumer, Russi said.

Those models include:

• Audi A4
• BMW 3 Series
• Buick Enclave
• Cadillac CTS, Escalade and SRX
• Chevrolet Cruze, Equinox, Malibu, Tahoe, Traverse, Silverado and Suburban
• Fiat 500
• GMC Acadia, Sierra and Yukon
• Honda Accord, Civic and CRV
• Jeep Grand Cherokee and Wrangler
• Maserati Ghibli, Gran Turismo and Quattroporte
• Mazda 3
• Mini Cooper Clubman, Convertible, Countryman, Coupe, Hardtop, Paceman and Roadster
• RAM 1500
• Toyota Prius
• Volkswagen Golf and GTI

Terms will mostly be three or four years.

Additionally, online marketplace Beepi will start offering SmartLease to its shoppers this month.

“Customers who shop for a car online at Beepi are looking for a seamless and customized buying experience,” Beepi head of business development Daniel Bilbao said in a statement.

“This gives them more choice,” he added. “So, whether people switch cars every few years or want to keep more money in their pockets, they can get the car they want with a flexible financing package to meet their changing lifestyle needs.”

Toyota CPO leasing

This news follows Toyota ramping up its leasing option in the Toyota Certified Used Vehicle program, which was first reported by Automotive News. 

In an interview with our sister publication Auto Remarketing to discuss TCUV’s 20th Anniversary, Bill Fay — the group vice president and general manager of the Toyota division at Toyota Motor Sales, U.S.A. — said TCUV leasing has always been an option, but now they’ve essentially made it easier for dealers to use as a TCUV retail tool.

Toyota also worked with Toyota Financial Services and refined some of the residuals.

Generally speaking, TCUV leasing gives customers another price-point to choose from that might not be available in a conventional TCUV retail contract.

“(In) parts of the country … the consumer is so much more lease-prone and open to a lease alternative, that that’s really embedded in the way they sell their vehicles,” Fay said. “So, I think it was kind of a natural transition to — with our help — make it a little easier to lease some of these newer,  certain-condition pre-owned vehicles as TCUV leases.

“I think we’re optimistic that it’s going to add a nice sales opportunity for us, especially in some of the areas where leasing is much more accepted from the consumer. But it’s still going to end up being a very small, 5 percent or less, part of our overall (TCUV) business as times goes on,” Fay added. “But we’re excited to be able to make a little bit of additional progress with it here as we start the year and know that we have some higher level of lease returns coming back to us and through the industry this year.”

But, will more automakers make leasing a bigger part of CPO?

“It wouldn’t surprise me,” Experian Automotive senior automotive market analyst Erik Hjermstad said during an interview at the NADA Convention & Expo in Las Vegas.

Think about all the risk from the flood of used cars coming back, he said.

“From a dealer’s standpoint, it’s easy to keep that business with that consumer,” Hjermstad said. “So to the extent now that the market is going to be flooding with those 2- and 3-year-old vehicles coming back, they’re going to do whatever they can to keep those consumers under their roof.

“If that means more leasing on the CPO side, I don’t think it would surprise me even a little bit,” he added. “Especially when you see what buying CPO versus used does in terms of customer loyalty … now you add in leasing, which increases loyalty on top of the CPO side, you could now be getting into the range of new loyalty rates (in the CPO market).”

Leasing, CPO fosters loyalty

Data that Experian presented at NADA bears that out.

CPO has 62.2 percent manufacturer loyalty, trailing new cars (64.8 percent) but nearly three points higher than non-CPO used (59.5 percent).

Likewise, make loyalty is 54 percent for CPO, versus 47 percent for non-CPO used and 57.5 percent for new.

Certified commands 20.9 percent model loyalty, against 26.1 percent for new and 15.1 percent for non-CPO used.

Meanwhile, the make loyalty rate is at 71.5 percent for leasing, compared to 60.6 percent for loans.  Generally speaking, Experian’s data shows that leasing pushes up overall brand loyalty.