CARY, N.C. -

It has long been forecasted that a dramatic increase in off-lease volumes would occur this year, offering used-car dealers a big boost in used-car inventory.

Now, at the halfway point of 2013, are those predictions coming to fruition?

To answer that question, Auto Remarketing takes a look at what some of the top analysts have said recently regarding this important artery of used supply.

Starting with NADA Used Guide, the firm predicted in its February Guidelines report that off-lease supply would grow by 14 percent this year, and factor significantly into bolstering an 8-percent, or 500,000-unit, growth in used vehicles up to three years old.

It’s also been projected that off-lease vehicles will provide a “steady flow back” for dealer operations.

“When these leases end, you’re talking about a satisfied customer,” Manheim Consulting chief economist Tom Webb said in a story for the March 15-31 print edition of Auto Remarketing, responding to a question about the increase in lease originations and lease penetration in recent years.

“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,” he said.

That same story in Auto Remarketing earlier this year also cited Manheim’s 2013 Used Car Market Report’s prediction that the rise in off-lease volumes will end a two-year decline, and in 2015 will pass 2.4 million units.

Over at KAR Auction Services, chief executive officer Jim Hallett commented in early May about price effects of the loosening off-lease market.

“These lease cars are now going to be able to get to dealers who haven’t been able to get to them before,” Hallett said. “Now as more dealers get more access to inventory, I think it will drive the prices of those cars up a little higher and it will be a little bit more competitive.”

Elsewhere, J.D. Power and Associates’ Power Information Network in April predicted that a considerable amount of off-lease vehicles will be brought to the lanes as overall lease maturities rise by 447,000, or 35 percent, to 1.73 million maturities for the full year of 2013, compared with 2012.

“The more lease maturities coming into the market does mean an increase in used-vehicle supply for dealers,” said Deirdre Borrego, vice president and general manager of PIN. “Although some of these vehicles will be purchased by dealers before they even go to auction, in terms of the overall market, it does mean we will see supply growing into 2013 and beyond.”

“A large portion of the incoming wholesale supplies flows from off-lease vehicles,” Dale Pollak, president of vAuto, said earlier this year. “These vehicles can offer a compelling one-owner value proposition for the next buyer.”

And in early May, Auto Remarketing reported that Jean Chatzky, financial editor for The Today Show, said used-car deals are the best the industry has seen in five years, after a period of tight supply due to the tsunami, a rocky economy, and consumers’ tight grips.

“They were holding on to their cars, and they weren’t leasing as many,” Chatzky said. “But this year, we are expecting just off-lease, an additional half million that will be sold used.”

Dealers could be able to get their hands on more off-lease vehicles than ever before, this year at auction. In fact, ADESA’s Tom Kontos talked with Auto Remarketing in March about his firm’s Pulse report, indicating that based on various industry estimates, the incremental change in off-lease volume this year will likely be an increase of 300,000 to 500,000 units from 2012.

A higher percentage of those vehicles will likely make their way into the remarketing world, he said, reversing a trend of the past few years in which grounding dealers purchased as many off-lease units as possible to address inventory shortages.
And there have been some positive early indicators.

CNW Research noticed some at the outset of the year. The firm said that off-lease vehicles helped boost February used retail sales by more than 4 percent.

Then in mid-April, Auto Nation reported a first-quarter same-store, used-unit sales increase of 6.7 percent year over year. CarMax also reported solid Q1 gains.

Overall, the industry saw a 12 percent gain in dealers’ used-car sales for both March and for Q1, according to CNW Research.

And in March sales performance reporting, ADESA’s Kontos noted that retail used-vehicle sales were highest for the month since 2002, according to CNW Research. Sales for that month were up 17.3 percent year-over-year for franchised dealers and 7.1 percent for independents.

In April, there were 3.81 million used vehicles sold, CNW said, inching up from 3.79 million in the same month of 2012.

So how much of these reported sales increases can be attributed to off-lease inventory? That can be hard to determine.

For some insight, Auto Remarketing reached out to Black Book editorial director Ricky Beggs for his input on off-lease, asking if the facts are yet confirming the dramatic forecasts.

“There is no doubt that end-of-term leases will increase this year over the previous two to three years. The real question is, how is ‘dramatically’ viewed?” Beggs said.

“We are seeing a very gradual increase in returns, but at the same time the number of new-car sales when reported doesn’t tell us if there is a trade-in which could actually be in the form of a EOT lease,” he noted.

“The other area to keep in mind with the EOT lease is how many will be kept by the original leasee and then how many will be kept by the grounding dealer. If the EOT vehicle doesn’t find its way to the wholesale channel, (it) has less effect on the market.”

Beggs said the returns will continue to gradually increase over the next couple of years. Meanwhile, dealers this year are beginning to benefit from increases in off-lease supply.

“The returning EOT unit is another great source of used inventory which the franchised dealer might get for his or her used-car inventory for below-market value or without having to bid within the auction system,” Beggs pointed out.

“These EOT units might also already be in the dealer management system, so the dealer has all service history on a vehicle. And if it is his or her brand, then there is a great probability it will be a great fit for the franchised certified program.”

There’s one caveat, however, Beggs noted.

“Due to the slightly softening used market, the EOT units today will not be coming back into the market with any equity, or at least not as much in 2013 and even less chance of equity in 2014,” he said. “Even then, buying at residual might be a better deal than taking a chance and being in a bidding situation on the lanes.”

Editor's Note: This story ran in the June 1–15 issue of Auto Remarketing, which featured our Used-Car Progress Report. Check out the issue for more on auction prices, off-lease supply and more.