My car seems to be beating the stock market. It’s nothing special—a midsize, mass-market sport-utility vehicle leased in September 2020. On the pandemic supply-chain timeline, that’s after the toilet paper panic and just before the everything-else shortage. And yes: leased. I get a new car every three years to avoid the hassle of repairs and periodically clear my seat rails of Happy Meal fries.
The lease is based on a $40,000 purchase price and a $26,000 “residual” value at turn-in, which I can pay for the car if I want. I’m running so far over my mileage allotment that I’m starting to suspect myself of sleep-Uber-driving. That should subtract from the car’s actual value at turn-in, yet I see identical, high-mileage cars selling now for $33,500. If those prices hold for a few more months, I’ll be “up” on my buy option by 29%. That’s two points more than the
S&P 500
index has returned over the same stretch.
I’m no vehicular Warren Buffett. In fact, I’m underperforming the benchmark. The Manheim Used Vehicle Value index is up 35% since September 2020. It started to fall late last year, but this year it’s rising again. The causes have shifted slightly.
Initially, car production plunged amid a chip shortage, and buyers turned to used vehicles for lack of other options. Now bottlenecks are easing and inventories are rising, but car makers remain cautious. The industry has gotten used to plump profit margins, and with financing rates sharply higher, the outlook for demand is unclear.
Meanwhile, leasing has fallen out of favor—finance companies don’t want to get caught overestimating residual values if used-car prices crash. And many drivers with existing leases face favorable math like mine, so they buy their cars rather than turn them in. That has crimped a key source of supply for used-car lots and sent dealers bidding up prices at auctions. Increasingly, they’re competing with the rental companies, which typically buy new, but manufacturers have shut down low-margin production.
Put it…
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