A shortage of late-model used vehicles is causing pre-owned prices to skyrocket to never-before-seen levels. New-vehicle inventories are down by an estimated 36 percent compared to a year ago, according to Edmunds.com. This is a result of pent-up consumer demand confounded by pandemic-fueled factory shutdowns last year and the current shortage of microprocessor chips halting or slowing production this spring.
Limited new-vehicle inventory and lofty transaction prices are forcing a growing number of car shoppers—even rental fleets—into the pre-owned market. And you know what happens when demand trumps supply. According to Kelley Blue Book, used-car prices have risen by a whopping average 18 percent over the last year.
And yet, current market forces are making it an ideal time to cash in if you’re leasing a car, truck or SUV and the contract is about to expire. That’s because car leases usually include a provision that allow a lessee to purchase the vehicle at the end of the term for a preset “buyout price,” which is typically at or close to the predicted residual value when the contract was written. Of course nobody could have predicted two or three years ago a pandemic of epic proportions would set off a series of events that is sending used-vehicle values through the proverbial roof.
Edmunds says used pickup trucks from the 2018 model year are worth, on average, as much as 80 percent of their original values, with sports cars at 64-65 percent, and midsize SUVs at 61 percent. In an otherwise “normal” market the average vehicle retains less than half of its MSRP after three years on the road. We’re noting the website’s list of the 20 vehicles from the 2018 model year that are expected to have the highest retained values below.
If you’re leasing a vehicle that’s approaching the end of the term, it behooves you to do some research to see how the buyout price compares to the vehicle’s current market value. Check online valuation sources, entering the make, model, trim level, options, mileage, and condition. If the vehicle’s value is greater than the buyout, which is almost a certainty these days, you can come out ahead on the deal by electing to invoke this clause. The easiest way to go is to shop around and find a dealership that’s willing to purchase the leased vehicle at the stated price, with you receiving any sum in excess of the buyout figure. If you have enough cash or can receive temporary financing, you can also purchase it from the leasing company and sell the car to a private party, perhaps for more money.
You can start by shopping the vehicle to the used-car departments of local dealers, or you can seek appraisals from chains like CarMax and Carvana or online sources. You’ll need to follow the lease terms to the proverbial letter, however. Some contracts may allow you to sell a leased vehicle before the contract expires, while others may place limitations on buyouts. Determine ahead of time whether you’re required to bring the car back only to a franchised dealer that sells the same brand, or if you’re free to sell it or trade it in to any dealership or private buyer.
Make sure you get all offers in writing with a date specified for how long they will be valid to ensure a given deal won’t be withdrawn when you show up with keys in hand. Since resale values typically vary based on location, given regional supply and demand issues, you may want to spend a day or two shopping the car to deals outside of your immediate area to try and garner a better deal.
It’s also a good time to sell or trade in a car you’re financing or one you own outright. “If you were upside down on your car loan a few months ago, there’s a decent chance that you could be in the black today,” says Ivan Drury, Edmunds’ senior manager of insights. “Consumers who own a vehicle and are thinking of making a new car purchase in the near future should consider pulling the trigger now. The inventory situation isn’t going to get any better any time soon, and you could essentially be wiping away multiple car payments with the added value of your trade-in.”
You’re certain to come out ahead—even if you owed more money than the vehicle was worth a few months ago—if you’re driving one of the 20 models from 2018 the experts at Edmunds say are currently enjoying the highest retained values:
- Ford F-250 Super Duty pickup: 80%
- GMC Sierra 2500 HD pickup: 80%
- Ford F-350 Super Duty pickup: 80%
- Toyota Tacoma pickup: 79%
- Ram 3500 pickup: 79%
- Toyota Tundra pickup: 78%
- Toyota 4Runner SUV: 77%
- Chevrolet Silverado 2500 HD pickup: 76%
- Jeep Wrangler JK SUV: 75%
- Ram 2500 pickup 74%
- Jeep Wrangler JL SUV: 73%
- Nissan Frontier pickup: 72%
- Chevrolet Colorado pickup: 71%
- Honda Ridgeline pickup: 70%
- Dodge Charger sedan 69%
- Subaru Crosstrek SUV: 68%
- GMC Canyon pickup: 68%
- Land Rover Range Rover Sport SUV: 68%
- Honda CR-V SUV: 67%
- Ford F-150 pickup: 66%