How long will the off-lease shortfall squeeze used car supply?

Lease maturities, typically a key driver of used car supply, have dropped sharply in 2024. After a 6% decline in the first half, maturities are set to fall another 19% by Q4, continuing a downward trend that started as a result of pandemic-era supply shortages, according to the latest Cox Auto forecasts.

Why it matters: The decline in lease maturities disrupts a vital source of nearly new, low-mileage used cars that dealers depend on. 

• With fewer of these units returning, wholesale prices are stuck. As a result, dealers are having a harder time sourcing used inventory. 

• The need for more supply is pushing some dealers to pay more at auction or for trade-ins — potentially tightening margins further.

What they're saying: "Off-lease vehicles were thought to be the natural (certified pre-owned) CPO-type vehicle, but because there's going to be a short supply, we're going to have to see more CPO-type vehicles created out of everything that's getting turned in to dealers, not just the off-lease," Charlie Chesbrough, senior economist at Cox Auto told Automotive News.

The good news: While the used car market grapples with tight supply, new car inventory is bouncing back. New vehicle inventories are up 40% from a year ago—the highest level since before the pandemic. This influx has helped ease new car prices, which dropped 1.7% from last year. The price drop is spilling over into used cars ever so slightly as well, boosting demand and sales.

What’s more? Leasing volumes rose 25% year-over-year in Q1 2024 thanks to aggressive incentives and subsidized interest rates. While the rise in leasing isn’t immediately solving today’s supply issues, it suggests a potential recovery in off-lease vehicles over the next few years.

What to watch: Analysts expect the lack of lease maturities to be more acutely felt this fall/winter and next spring, with meaningful recovery not forecasted until late 2025. This will make it hard for dealers to keep a healthy supply of used vehicles, as tighter supply will likely underpin pricing for the foreseeable future.

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