Automotive market | How to take advantage of the resale overheating

Notice to motorists at the end of their vehicle lease contract: the market for used vehicles in good condition has tightened so much over the past year that the market value of your vehicle could be higher than the purchase cost at the residual value entered in your rental agreement.

Martin Vallieres
The Press

In the opinion of experts, it is worthwhile to be well informed about the state of the market for vehicles similar to yours before deciding between buying it back or returning it to the dealer at the end of the lease contract.

“A motorist who makes this decision without having previously informed himself about the market value of his used vehicle could find himself making a gift of a few thousand dollars to his dealer”, indicates George Iny, president of the Association for the protection motorists (APA).

Almost never seen

A gift ? “It should be noted that the strong demand for certain types of used vehicles has increased their value on the resale market. We now see discrepancies of $2000 to $6000 from the residual value [de rachat] listed in the rental contract. Especially since this value had been estimated a few years ago, before the pandemic and its significant impact on supply and demand in the automotive market”, explains Mr. Iny during an interview with The Press.

At the Corporation of Quebec Automobile Dealers (CCAQ), the CEO, Robert Poëti, also reports an “exceptional market situation for used vehicles”, and in particular for vehicles in good condition that return to the market in end of his rental contract.

“The increase in demand and prices for these used vehicles has been such for a year that it is causing a phenomenon rarely seen since the popularization of car hire-purchase some twenty years ago, explains Mr. Poëti. .

“This phenomenon, in accounting terms, is the formation of a “positive equity” in favor of the holders of rental contracts, that is to say the difference between the current market value of their used vehicle and its value residual recorded in the rental contract. »

Predict the end of his term

For motorists at the end of the rental contract, how can they make the most of this “positive equity” in the value of their used vehicle? According to George Iny, of the APA, at least six months before the end of a rental contract, an informed motorist should inquire about the market value of his vehicle (see box on this subject) in order to then be able to estimate its potential positive equity value under the terms of its lease.

With this estimate in hand, a motorist can then decide on the most advantageous option at the end of his rental contract.

He could thus buy back his vehicle at the residual value indicated in the contract in order to then be able to resell it at a higher price of a few thousand dollars in the used vehicle market.

“By doing so, it is the motorist who collects the ‘profit’ resulting from this price difference – his positive equity – instead of it being left to the advantage of the car dealer”, summarizes the president of the APA .

With a good estimate of the market value of his vehicle, the motorist will also be better able to “shop around” for offers to buy back his rental contract before expiry from car dealers.

“Used vehicle stocks are very low at most dealerships,” admits Robert Poëti of the CCAQ.

“Therefore, for vehicles in high demand, such as compact SUVs and economy cars, dealers may offer a bonus of a few thousand dollars to their customer to ensure they get their vehicle at the end of the lease, rather than to sell it to him at the residual value written in the rental contract, which often dates from before the impact of the pandemic on the automobile market. »

But beware, warns George Iny of the APA, “You shouldn’t accept your dealer’s first buy-back offer before comparing it with offers from other potential buyers of the vehicle, both merchants than individuals.