LAWRENCEVILLE, Ga. -

As more off-lease vehicles hit the wholesale market, dealers and finance companies are likely to be challenged to find buyers who will purchase these potentially certified pre-owned units even as CPO sales continue to set records. In an effort to help the industry consider another option — used-vehicle leasing — Black Book released a white paper on Tuesday aimed at helping finance companies identify which vehicles will make good candidates for a used-lease program.

In the white paper, titled “How to Grow a Profitable Used Leasing Portfolio,” Black Book acknowledged that not all vehicles depreciate alike. And with fluctuating residual forecasts across all segments, analysts emphasized that it’s imperative finance companies, dealers and industry professionals rely on collateral data to identify the right vehicles for a used-lease portfolio.

“As the off-lease inventory of three- and four-year-old vehicles continues to increase this year and over the next few years, lenders, dealers and remarketers will need to find alternative channels to return these vehicles out into the market,” said Anil Goyal, senior vice president of automotive valuation and analytics for Black Book, who also will be one of the many experts coming to Las Vegas this November for Used Car Week.

“Used leasing may be the right choice for some of these vehicles, but the wrong decision can be detrimental to the profit margins of a portfolio, which is why collateral data can mitigate any vehicle profit risk,” Goyal continued.

Black Book’s white paper offers specific data examples that address certain scenarios:

• Where used leasing would not make sense: A comparison of a new vehicle finance environment against the same vehicle after 36 months, with data showing how the monthly payments offered would not differ greatly based on a number of criteria.

• Where used leasing would make sense: A similar comparison of a new vehicle with its counterpart at 36 months of age; this time, factors such as mileage and a residual without subvention show where the monthly payment would show a noticeable difference.

• How to leverage residual data to find used lease candidates: An explanation into residual forecasting and depreciation trends that can lead to the identification of optimal used lease opportunities based on collateral insight.

In light of those examples, we asked Goyal to speculate a bit. What if a large captive or other finance company that already holds a significant market share would “go all-in,” so to speak, with used leasing? What kind of ripple effect could it have on the market?

“This is why collateral data plays a key role, and it’s a big reason why we decided to investigate the issue through the new white paper,” said Goyal, who will be leading discussions during both the CPO Forum presented by Autotrader and the SubPrime Forum presented by Digital Recognition Network.

“Lenders that wish to increase their portfolio with more used leases need to rely on collateral data to identify which vehicles make good candidates,” Goyal continued. “By identifying the models that make the most sense, lenders will increase their chances of gaining profit potential with their portfolio.”

As many wholesale experts have said, off-lease volume is on the rise primarily because so much new-model leasing is occurring. In fact, Experian Automotive recently reported that new-vehicle leasing reached a new threshold during the second quarter as 31.44 percent of new-model financing was delivered as a lease. It’s situations like those that Goyal surmised as potential impediments preventing used-vehicle leasing from gaining significant momentum in the past.

“Volume plays a large role here. Because there is so much off-lease inventory available now, compared with six or seven years ago, lenders are now interested in identifying the different ways to move off-lease inventory,” Goyal said.

And if a vehicle ends up being connected to two leases, Goyal believes those units still will have life remaining for dealers to retail, perhaps with more financing attached.

“It would be no different than if those same vehicles went through a CPO program and then ended up on a buy-here, pay-here lot. In many cases, a used lease program might keep the mileage on a vehicle in check between months 36 and 60,” Goyal said.

To download Black Book’s latest white paper focused on used-vehicle leasing, go to this website.