Anyone interested in exploring car sales ideas in SF/Bay-Area? I have one for which I did a bunch of market research and it looks promising. Happy to explore more.
20 years in the auto industry on the retail side. I'd be happy to consult for free and dig deeper if I liked the direction of the project. jmatthews005@gmail.com
That's a good idea. I'm not the one to take it on, but could see myself being a customer.
Especially the month-to-month thing, I'd be all over that just because I don't like the commitment of owning a car although it's basically required where I live
Duh, Mercedes Finance will happily lease you a nice, clean used Mercedes. Especially if it meets their Star Certified criteria. My first MB was leased from new for three 3-year lease terms; obviously terms 2 and 3 were a used car. My next MB was used and leased for three years. In all cases the lease terms were clear and fair, and the interest rate very competitive. Right now my car loan is with them and under 1%.
I'm sure that other reputable brands have similar programs.
US has a similar company with correspondingly similar alliteration, Rent a Wreck (http://www.rentawreck.com/). Despite the name, they seem to rent newer model vehicles at market rates.
Seems to me the real obstacle would be financing the operation. Finance shies away from used vehicles because they are much more difficult to accurately appraise, and without accurate appraisals you are assuming another (large) dimension of risk.
Where do rental cars go after they're two or three years old? I've always wondered, but they seem like a stock of well maintained vehicles ready for leasing.
IIRC (at least in California) it is illegal to lease a used vehicle - it must be purchased. I don't know what the reason for this is, or if I even remember that correctly but I'm pretty sure its a law because when I purchased my car I checked into this. You can transfer your lease (i.e. swapalease.com), but in order to do it legally the swapper typically has to have their credit approved and fill out paperwork for the dealership. Another factor is that most sellers won't be interested in leasing a used vehicle because there is so little financial incentive -- leasing distributes that value of the car over a period of time and based on mileage used -- if a used car is only worth (say) $5-10k, it couldn't be leased for very much.
If anyone has a link, that'd be helpful. Start in a state without such regulations. Or just ignore them until you're big enough to matter to regulators.
Issue is lemons and adverse selection. New cars have probabilistic risk of defects. Used cars, not so much. Leasing depends (mathematically) on correct and reliable modeling of residual values. Once you get a starting pool of unknown risk [1], somebody is playing a fools game. Just a couple things to think about.
Modeling failure of a used car doesn't seem that different to me than a new car. There is a distribution, probably more expensive for slightly used cars. It can be modeled and incorporated into price.
Yep, I haven't modeled this out. If anyone wants to do the legwork, compare the cost of a 2014, 2013, 2012, and 2011 basic package honda civic, and the maintenance cost estimate for the next year of each. I'd expect the depreciation from 2-3 years in life to be a small fraction of 0-1 years, with slightly higher maintenance.
The problem isn't depreciation vs. normal maintenance. The problem is the occasional write-off of an entire car because the moronic previous owner didn't change the oil for the first 30,000 miles. For example.
Oh, sorry, I misunderstood the nature of risk you're describing. You referred to lack of maintenance by the previous owner, I thought you meant lack of maintenance on the vehicle while on the lease. A good mechanic would be able to at least quantify the risk level on a used car, it seems, with X-point test that most of "certified pre-owned" places conduct.
Here in Poland it's completely legal and I have leased used vehicles both personally and for business use as well. My experience with leasing companies is that they will lease pretty much any vehicle there that is out there on the market. If you find a used car offer, you can contact a leasing company, they will buy the car and then lease it out to you. I even had a car which had to be imported first - I've signed a contract with the leasing company first,then I was given access to a special account with money in it for the car,and then had to go abroad,buy the car and bring it back to Poland - and then they took care of registering it and they were the rightful owners of it - I was only leasing it out from them.
I think this ignores the fact that used car sales are one of (if not the) largest revenue source for dealerships. With current interest rates a lease would probably end up bringing in less revenue than a sale, new cars move at low prices because dealerships get volume bonuses. Those same bonuses don't apply to used cars so you're eating away at your bonuses if people are now tempted to lease a 2012 for less than a new car. This wouldn't make financial sense for them to do, even with MB-USA while they offer this service it's not exactly what they push hard to get you to do.
Without the infrastructure and support of an auto manufacturer this would be hard to get a profit, and no dealership would find this to be the best business model.
It matters a lot more if people are interested in this than if dealerships maximize profit doing it. I think people would move away from ownership if it were easier, and considering all the parts of the process that could be improved, it seems like a good experiment.
The new hotness in the auto business is used car only stores. So not EVERY dealer would suffer from your proposed hardship. Further, the way the market segments some people only consider new cars. It's as much habit or bias as it is an opportunity based decision.
I have a friend who works for a HUGE dealership! i can preseo the idea to them and see wassup? anyone wanna build a HTML/CSS prototype using bootstrap + backbone.js? do we have a name?
+ (for new car) much closer to information symmetry with the seller, especially given lemon law protection and new car warranty although those aren't directly about information symmetry.
I've done both new and used and have had a variety of experiences in both cases. But I probably wouldn't be n a big hurry to buy a used car at this point. I looked around when I bought my last vehicle and the price savings associated with modest mileage used vehicles just weren't especially compelling. (And I wasn't even financing.)
This has actually crossed my mind lately, i looked into leasing a van for business purposes and i did "back of the napkin" calculations on hypothetically starting my own used van leasing company. I couldnt make it worth the hassle. Does anyone have any of their own basic business model calculations?
Generally what you pay for when leasing a new car is the depreciation. This is why luxury sedans like a BMW often have better lease deals than cheaper or less desirable cars--you're only paying for the depreciation, not the base cost of the car, and these cars depreciate much slower.
That said, just because that's how it works for new cars doesn't mean there isn't a market for leasing used cars. In fact, I could see myself leasing high mileage luxury cars--cars I wouldn't normally buy due to the mileage but wouldn't mind renting for a few years, so long as the price was notably less than leasing a brand new car of the same kind.
Luxury brands depreciate at a higher per-day-per-mile amount than non-luxury brands. A trivial amount of research will prove this out. No disrespect intended.
No disrespect taken at all. I don't have any problem admitting I'm completely wrong on something. I'd be glad to learn more about the topic. However, a trivial amount of research has really only served to seemingly complicate the matter rather than confirm it either way. For instance, luxury brands fared well here:
Ahh, when determined as a percentage of msrp the field gets murky. But 10% of a $20,000 msrp is markedly different than 10% of a $70,000 msrp. In raw dollars higher msrps depreciate by a much larger whole dollar amount, which would be reflected in the depreciation component of a pre-owned lease.
Also the luxury examples in your provided link trend towards "niche" luxury models. It is possible on some models at certain times to be a car new and re-sell it for a profit immediately. (Examples at current are the Range Rover and the new Corvette.) These markets are extremely fickle though.
A final point having read the comments of your link. When they rank cars by the factory residual value they do not discount that manufacturers attempt to prop up resale value by inflating residuals and writing offf the loss at lease maturity. Accounts based on that should be discarded or at least fact checked by an independent source, such as ALG.
If anyone would be doing this, I figure it'd be CarMax. They have a steady supply of used cars (mostly bought at auction), a staff that is good at appraising used cars, and a well worked-out & automated sales process.
If any folks are interested in working on this idea, I'd be up for exploring the feasibility of the project & how we could work together. Contact info in my profile.
I like this a lot - if you can regulate the market and ensure a high quality experience this would fit perfectly in the space between owning a car (big commitment) and renting (obscenely expensive). I'd use it!
I would love this. I always lease my cars. It's extremely convenient, but there are also huge price benefits. Manufacturers often have great lease incentives, and spending ~$35k on a car I'll likely get sick of in a few years seems crazy to me.
But I don't particularly care about new cars, I just want them to be "new enough". If someone can deliver a good used car leasing service, I would be all over that.
For such a business, the real competition is the same customer using a loan to buy a used-car, approximating the same up-front, monthly, and end-of-term costs.
So, to succeed, can the business acquire its fleet more cheaply than others? Tricky, especially if trying to keep a uniform fleet of desirable used-cars like the example Honda Civics (which already command a resale premium).
Or, can the business better assess credit/damage risks than established used-car financers? My hunch is those people wanting to lease, rather than buy, a used-car could be uniquely risky.
So it feels double-sided in the adverse-selection dimension: both your fleet and your customers will be rejects from other fairly competitive, evolved systems.
I think there's WAY too much baggage with the word leasing. Car ownership-as-a-service or car subscription or...
For $X, you get a the use of a clean car full-time. For a $30 cleaning fee, you can swap it out for a different car (bonus-- drive different cars!). Or for a one-time fee, you can access the "specialty fleet" - trucks, vans, and the like for when you need to move stuff or when you have lots of company in town.
Upsell to insurance packages, white-glove maintenance packages, etc.
This also disrupts long-term car rental (which is annoying) for relocation, long-term biz trips, etc.
Huge savings in time dodging registration, buying/selling, etc.
The big question is: can you make the numbers work... And, of course, the elephant in the room is that you need a TON of money to give this a proper try (though there are interesting hacks to test an MVP).
This must be a US-only thing - I have personally leased used cars and leased them for my company's use as well. So maybe it's just your country(which I assume is US) that does not have used-car leases?
54 comments
[ 3.7 ms ] story [ 115 ms ] threadI know from posting these ideas that there is a lot of latent interest, but less publicly stated.
I post my email all the time on HN and never get spam. Thanks gmail! See: ivan.kirigin@gmail.com
Especially the month-to-month thing, I'd be all over that just because I don't like the commitment of owning a car although it's basically required where I live
I'm sure that other reputable brands have similar programs.
Literal translation: rent-a-corpse. You pay about $50 a day, choose your type (van, personal, etc.).
They're mainly used when people move by themselves, have to take stuff to the junkyard and such.
The down-side is, typically, that you can get a lousy car (playground for lemons).
On the plus side, they have a thriving business, and been in business since 1995, so it's not a dead-end idea.
[1] http://en.wikipedia.org/wiki/Rent-a-Wreck
(High value meaning predictable/reliable/etc, not necessarily sticker price)
Please excuse my mirth, but fleet vehicles are generally not well-maintained, and the folks renting cars tend to be hard on them.
https://en.wikipedia.org/wiki/Lemon_law
https://en.wikipedia.org/wiki/Adverse_selection
Edit: [1] State lemon laws vary by state and may not necessarily cover used or leased cars, and other goods.
I don't have evidence, but I expect once you correctly account for the risk in your cost model, your pricing will be wildly unattractive.
http://us.lexusownersclub.com/forums/topic/70591-is-it-manda...
Without the infrastructure and support of an auto manufacturer this would be hard to get a profit, and no dealership would find this to be the best business model.
It matters a lot more if people are interested in this than if dealerships maximize profit doing it. I think people would move away from ownership if it were easier, and considering all the parts of the process that could be improved, it seems like a good experiment.
No, they're not. New car trades are liquidated at auction houses.
Source: I work in the automotive industry.
Easy source checks are any research on CarMax, a light review of any of Pollacks books(Velocity, Velocity 2.0, Velocity Overdrive)
Source: I am also a domain expert in the auto industry.
0% APR + new car warranty + lemon law protection + 0 miles > whatever APR you get on a used car + 30 day at best warranty + 40k-60k miles
I've done both new and used and have had a variety of experiences in both cases. But I probably wouldn't be n a big hurry to buy a used car at this point. I looked around when I bought my last vehicle and the price savings associated with modest mileage used vehicles just weren't especially compelling. (And I wasn't even financing.)
That said, just because that's how it works for new cars doesn't mean there isn't a market for leasing used cars. In fact, I could see myself leasing high mileage luxury cars--cars I wouldn't normally buy due to the mileage but wouldn't mind renting for a few years, so long as the price was notably less than leasing a brand new car of the same kind.
http://forums.motortrend.com/70/1044466/the-general-forum/co...
Also the luxury examples in your provided link trend towards "niche" luxury models. It is possible on some models at certain times to be a car new and re-sell it for a profit immediately. (Examples at current are the Range Rover and the new Corvette.) These markets are extremely fickle though.
A final point having read the comments of your link. When they rank cars by the factory residual value they do not discount that manufacturers attempt to prop up resale value by inflating residuals and writing offf the loss at lease maturity. Accounts based on that should be discarded or at least fact checked by an independent source, such as ALG.
https://www.alg.com/
If any folks are interested in working on this idea, I'd be up for exploring the feasibility of the project & how we could work together. Contact info in my profile.
www.leasetrader.com or www.swapalease.com or a boat load of other websites.
How is this any different?
But I don't particularly care about new cars, I just want them to be "new enough". If someone can deliver a good used car leasing service, I would be all over that.
So, to succeed, can the business acquire its fleet more cheaply than others? Tricky, especially if trying to keep a uniform fleet of desirable used-cars like the example Honda Civics (which already command a resale premium).
Or, can the business better assess credit/damage risks than established used-car financers? My hunch is those people wanting to lease, rather than buy, a used-car could be uniquely risky.
So it feels double-sided in the adverse-selection dimension: both your fleet and your customers will be rejects from other fairly competitive, evolved systems.
For $X, you get a the use of a clean car full-time. For a $30 cleaning fee, you can swap it out for a different car (bonus-- drive different cars!). Or for a one-time fee, you can access the "specialty fleet" - trucks, vans, and the like for when you need to move stuff or when you have lots of company in town.
Upsell to insurance packages, white-glove maintenance packages, etc.
This also disrupts long-term car rental (which is annoying) for relocation, long-term biz trips, etc.
Huge savings in time dodging registration, buying/selling, etc.
The big question is: can you make the numbers work... And, of course, the elephant in the room is that you need a TON of money to give this a proper try (though there are interesting hacks to test an MVP).