Trevor Watson | June 23, 2020
Every dealer is feeling the impact of the very unique market conditions brought on by the pandemic. The statewide closures, injection of stimulus funds, moratoriums on repossessions and lease return extensions, combined with pent-up demand have thrown the used car market into whiplash.
Here is an excellent article that dives into the details of the current used (and new) car supply squeeze:
How LHPH Helps Dealers During Supply Challenges
This unforeseen situation has shined a light on an additional benefit of having your own Lease-Here, Pay-Here program: Recycling of Inventory. We often promote recycling of maturing leases from your portfolio as a significant advantage of LHPH from a profitability perspective, and it is. However, the additional benefit of having a mature portfolio of leases with numerous lease returns coming back to each month is: free inventory.
For dealers who have developed their LHPH program over the last few years, they have 10, 20, 30 cars coming back onto their lots each month, without having to buy those vehicles in the market. These cars are debt-free, no flooring or lines of credit debt and fees weighing their operations down. These dealers are not paying $2,000 over book to win the vehicle from their competitors on the block. Many are still buying additional vehicles for the inventory right now, but they can be selective, thanks to their guaranteed flow of lease returns each month.
Of course, growing and maintaining a lease portfolio to the maturity point takes time, discipline and dedication. Dealers who may read this and think, “that doesn’t do me any good at this moment,” should remember, we have now seen two significant supply crunches in the last 12 years alone. With little doubt, there will be more of these events at some point in the future. Preparing now and building your lease portfolio will allow you to ride out the natural fluctuations of the future used car market, whether those are large or small.