Startup Idea: Used Car Leasing

http://blog.kirigin.com/startup-idea-used-car-leasing

by ivankirigin • 13 years ago

36 52 13 years ago

blog.kirigin.com

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.

ivankirigin5• 13 years ago

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

jmatthews5• 13 years ago

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

ValG• 13 years ago

I worked through car dealerships both at a low and a high level through my early career. Would be interested in chatting. valgui@gmail.com

conductr• 13 years ago

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

Satoshietal• 13 years ago

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.

klapinat0r• 13 years ago

A local company comes to mind, Lej et Lig (translated from Danish): http://translate.google.dk/translate?sl=auto&tl=en&js=n&prev...

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.

nixy• 13 years ago

Yes, the English term is rent-a-wreck, stemming from the company with the same name[1], founded in the sixties.

[1] http://en.wikipedia.org/wiki/Rent-a-Wreck

mutagen• 13 years ago

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.

sliverstorm5• 13 years ago

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• 13 years ago

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• 13 years ago

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.

gavanwoolery• 13 years ago

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.

ivankirigin5• 13 years ago

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• 13 years ago

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/Adverse_selection

Edit: [1] State lemon laws vary by state and may not necessarily cover used or leased cars, and other goods.

gambiting2• 13 years ago

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.

haldujai• 13 years ago

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.

ivankirigin5• 13 years ago

"your margin is my opportunity"

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.

blhack• 13 years ago

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• 13 years ago

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.

jmatthews5• 13 years ago

Most used car models are based on retailing a high percentage of dealer trades as they are the highest margin source of inbound vehicles.

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.

jmatthews5• 13 years ago

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.

jussy• 13 years ago

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

adamqureshi• 13 years ago

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?

musgrove• 13 years ago

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

wcfields• 13 years ago

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• 13 years ago

+ (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.)

TamDenholm• 13 years ago

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?

nilkn2• 13 years ago

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.

jmatthews5• 13 years ago

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.

nilkn2• 13 years ago

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...

chiph• 13 years ago

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• 13 years ago

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.

Apofis• 13 years ago

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?

cykho• 13 years ago

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!

coffeemug• 13 years ago

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.

gojomo• 13 years ago

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.

webwright• 13 years ago

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).

argumentum• 13 years ago

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

gambiting2• 13 years ago

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?

Startup Idea: Used Car Leasing

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