
Startup Idea: Used Car Leasing - ivankirigin
http://blog.kirigin.com/startup-idea-used-car-leasing
======
klapinat0r
A local company comes to mind, _Lej et Lig_ (translated from Danish):
[http://translate.google.dk/translate?sl=auto&tl=en&js=n&prev...](http://translate.google.dk/translate?sl=auto&tl=en&js=n&prev=_t&hl=da&ie=UTF-8&u=http%3A%2F%2Fwww.lejetlig.dk%2F)

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.

~~~
mutagen
US has a similar company with correspondingly similar alliteration, Rent a
Wreck ([http://www.rentawreck.com/](http://www.rentawreck.com/)). Despite the
name, they seem to rent newer model vehicles at market rates.

------
coffeemug
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.

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gavanwoolery
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.

~~~
ivankirigin
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.

~~~
001sky
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.

[https://en.wikipedia.org/wiki/Lemon_law](https://en.wikipedia.org/wiki/Lemon_law)

[https://en.wikipedia.org/wiki/Adverse_selection](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._

~~~
ivankirigin
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.

~~~
sliverstorm
_It can be modeled and incorporated into price._

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.

~~~
ivankirigin
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.

~~~
sliverstorm
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.

~~~
prostoalex
Requiring proof of regular maintenance or even owning the process of
maintenance is pretty common for dealerships.

[http://us.lexusownersclub.com/forums/topic/70591-is-it-
manda...](http://us.lexusownersclub.com/forums/topic/70591-is-it-mandatory-
for-a-lease-owner-to-perform-scheduled-maintenance/)

~~~
sliverstorm
Ok, maybe if you buy _only leased vehicles_ you could CYA enough. But this
thread was about "used vehicles", no?

~~~
prostoalex
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.

------
haldujai
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.

~~~
blhack
>I think this ignores the fact that used car sales are one of (if not the)
largest revenue source for dealerships.

No, they're not. New car trades are liquidated at auction houses.

Source: I work in the automotive industry.

~~~
driverdan
The margins on used cars are many times those of new cars. Most dealerships
_do_ make more money from their used cars unless they are very high volume.

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cykho
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!

------
Satoshietal
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.

------
AHconsidered
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.

~~~
ivankirigin
post your contact info :)

I 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

~~~
jmatthews
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

------
webwright
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).

------
gojomo
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.

------
sliverstorm
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.

~~~
maxerickson
Yeah, I'm not sure there is a large underutilized fleet of cheap, high value
vehicles out there.

(High value meaning predictable/reliable/etc, not necessarily sticker price)

~~~
xbryanx
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.

~~~
sliverstorm
_they seem like a stock of well maintained vehicles ready for leasing_

Please excuse my mirth, but fleet vehicles are generally _not_ well-
maintained, and the folks renting cars tend to be hard on them.

~~~
brudgers
The difference between a rental car and a Jeep is that you can drive a rental
car anywhere.

------
nilkn
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.

~~~
jmatthews
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.

~~~
nilkn
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:

[http://forums.motortrend.com/70/1044466/the-general-
forum/co...](http://forums.motortrend.com/70/1044466/the-general-
forum/consumer-reports-10-best-and-worst-cars-for-deprec/index.html)

~~~
jmatthews
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.

[https://www.alg.com/](https://www.alg.com/)

------
chiph
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.

------
tylerlh
Full stack/front-end dev here.

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.

------
TamDenholm
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?

------
conductr
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

------
gambiting
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?

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jussy
Caas car as a service would be better directly from the manufacturer.

------
Apofis
You can already assume other people's leases and there's even a market out
there for this.

www.leasetrader.com or www.swapalease.com or a boat load of other websites.

How is this any different?

------
argumentum
Isn't this just like Getaround? Or are you suggesting that the startup buy
lots of optimal used cars just for this purpose?

------
musgrove
I look at that chart and just laugh. Why in the Hell would anyone buy a new
car these days!?

~~~
wcfields
Easy:

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

~~~
ghaff
\+ (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.)

------
adamqureshi
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?

