CARY, N.C. -

The leasing market has come roaring back: more leases written, greater penetration rates and even more vehicles flowing back in the used-car market off lease.

So what does this mean for the used-vehicle side of your business?

To figure this out, Auto Remarketing took five leasing trends highlighted in Manheim’s 2013 Used Car Market Report and at the company’s NADA Convention & Expo press conference. We then asked Manheim Consulting chief economist
Tom Webb what impact each trend could have on the used-car department.

Trend No. 1: There were 2.5 million new lease originations last year, compared to 2.1 million in 2011, according to Manheim’s report. What’s more, the market’s 2009 low point only saw 1.1 million leases written, Manheim indicated.

Additionally, lease penetration rates have been on the uptick, climbing from 20.1 in 2011 percent to 20.5 percent last year (and up from 13.2 percent in 2009).

Webb’s Take: “It is going to provide you, in terms of your total dealership operation, a steady flow back, especially since — as we say — the leasing was done right. The contract residuals weren’t crazy, and we weren’t pushing people into leasing simply move the metal.
“When these leases end, you’re talking about a satisfied customer. So, you’re probably going to put (the customer) into a new vehicle and successfully retail that used vehicle, as opposed to some of those instances in the past where the residuals were so bad, the person was put into a long-term lease or a lease with a very low mileage allowance where they actually came back as a dissatisfied customers. I don’t think that’s going to happen.”

Trend No. 2: Manheim expects off-lease volumes to increase over the next three years. After plummeting to a level just over 1.5 million units in 2012, expectations are that off-lease volumes will end a two-year decline and move upward this year, followed by steeper growth in the coming  years.

In fact, they will likely pass 2.4 million units in 2015.

Webb’s Take: “They (dealers) certainly will benefit from that increased supply. I think it will be particularly important for the certified pre-owned programs that the franchised dealers have, because they had a record level (of sales) last year even though you might say that the availability of potential units was restrained. So with that volume increasing, with the CPO programs being so successful, I think they can enjoy some nice growth in that segment.”

Trend No. 3: Manheim indicated in the Used Car Market Report that lease pull-ahead programs have proved fruitful for dealers and lessors, given all-time high wholesale prices.

This not only nets a new sale for the dealer, it brings in additional used inventory. Manheim believes these programs will “remain strong” this year. Of course, some of the benefits have been with automaker CPO programs, as lease pull-aheads generate much-needed inventory for dealers to certify.

Webb’s take: “The pull-ahead programs still continue. In terms of percentage of units going that route, it has probably hit a high. It’s certainly driven by the amount of — even though it’s not equity — what you would call positive equity; the difference between a market value and a residual in the contract. When you have a positive situation, certainly the pull-ahead programs work very well, because the lessor — or even the dealer — can pull them out with certainly no early termination fee, and the customer is normally pleasantly surprised if they can get into a new unit with the same monthly payment.

“Once the market values and contract residuals come more closely in line with each other, there’s still an opportunity to do that. And it’s still worthwhile to do it, because certainly when you do it from a lessor’s standpoint, you are capturing that customer again into your make.”

From the used-car department standpoint, besides generating additional used inventory, Webb pointed out that, “to the certain extent,  you can work the program so both the lessors and dealers know what the market situations are in terms of pricing and (have) a good feel for how they’re going to go; obviously it makes sense to pull these units back when you need them, when the prices are right. If there’s a time where prices are weak and you don’t need the units, then you don’t run the program.”

Trend No. 4: After incurring hefty losses in 2008 from end-of-term units, lease remarketers achieved record profits two years ago and kept strong lease return gains rolling in 2012, Manheim indicated.

Webb’s Take: “It probably doesn’t directly impact the used-car department … except for the fact that it’s part of the reason why you can do these pull-ahead programs so easily and why it’s worthwhile to do them. I think the bigger impact, of course, is that not suffering those tremendous losses, it makes lessors more comfortable in writing new leases, so in the future that will come back to you.”

Trend No. 5: More off-lease remarketing is going toward online/upstream channels, according to Manheim.

Webb’s Take: “The most important one … for the dealer, it’s important for them to be the grounding dealer, because that gives you that right. You might not have written the lease contract, but if the customer comes back to your dealership, you’re right there and you have the opportunity to secure that unit at that time.”
 

Editor's Note: The information in this story appears in the March 15-31 print and digital issues of Auto Remarketing as part of the Spring Used-Car Market Report section. Be sure to check out the full issue to see more used-car trends from early 2013.