In recent years, automakers have aggressively pushed the idea of leasing. It's a great way to move metal.
But now millions of 2- to 3-year-old vehicles are pouring onto the used-car market, providing tough competition for the new models manufacturers want to sell.
That problem for automakers may be a boon for buyers, particularly those seeking to go upscale.
The glut of off-lease cars — about 3.5 million were returned to dealers in 2000 — is driving used-car prices to some of the lowest levels since 1996, according to consumer price index specialists at the Department of Labor.
For buyers, the glut means a golden opportunity to let someone else pay for the steep depreciation in value that new cars suffer in the first couple of years; a 2-year-old vehicle may sell for 30 percent to 40 percent less than its original sticker price.
From 1997 through 1999, Lincoln sold about 275,000 new Town Cars. As many as 65 percent of those cars were leased, so nearly 180,000 of them have already or will soon hit the market as much cheaper, nearly-new used cars.
Last year 2-year-old Town Cars were priced at $15,000 to $20,000 below the original sticker price. In fact, prices were much lower than the leasing companies themselves had expected.
A key component of a lease is the projected residual value of the car — that is, what it's expected to be worth when the lease ends. As Town Cars have returned to market, residual values on new leases have slipped dramatically.
A Lincoln Town Car leased in 1998 was expected to be worth 59 percent of its original price after two years; a 2001 model is expected to hold just 45 percent of its value.
Other luxury cars are following a similar pattern. The projected residual value of a Cadillac Seville is now seven percentage points lower than in 1998; Infiniti Q45s are down nine points; Jaguar XJs are down eight; and Lexus LS 400s are down five points.
If you're looking for a good used luxury car, you'll find plenty of candidates among 2- and 3-year-old Cadillacs, Infinitis, Jaguars, Lexuses and Lincolns. They all came with four-year factory warranties, and any remaining coverage transfers to you, the new owner.
Moreover, dealers often put off-lease cars through a so-called certification process of rigorous inspection and repairs to return the car to almost-new condition.