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Cox Automotive chief economist Tom Webb called it “relatively unusual” that off-lease volume and retail sales of certified pre-owned vehicles were nearly identical last year at 2.55 million units.

Webb is thinking off-lease volume this year will swell to about 3.1 million while CPO sales are “not nearly going to grow nearly that much.” He made that comment during his quarterly conference call just days after Autodata Corp. indicated the 678,169 CPO sales in the second quarter represented the best-ever figure.

Webb projected this year’s CPO sales will “probably be in the neighborhood of” 2.7 or 2.8 million units.

“That’s not to diminish the value of the programs,” Webb said about how automakers promote and orchestrate their certified initiatives. “They’re extremely important in helping to protect residual values, creating a separate class of customer.

“The problem that comes here (is), you have the captive finance companies doing a lot of very good work in terms of trying to protect the residual values of their off-lease units coming back through CPO program. But if at the same time, you’re putting out a very aggressive new-vehicle lease deal, you’re competing against your own program,” he continued. “That’s the balancing act they have.”

So what is the industry going to do with perhaps 300,000 vehicles that likely can be certified because they’ve just come off of a lease? OEMs and captives might go back to a strategy that’s been tried but not necessarily successfully — used-vehicle leasing. Ally Financial and Toyota each highlighted programs earlier this year.

“If the programs are run well, it obviously could have a positive impact because certainly what the dealer is willing to pay at wholesale is going to be dependent on their ability to retail it at a certain gross within a certain period of time. An attractive lease product probably helps that position,” Webb said.

“Certainly as the lessor, you run the risk of just moving residual risk from one contract to the next,” he continued. “In terms of used-vehicle leasing, it has been a hard business model to put together in the past. But limiting it to a CPO-type product, I think certainly helps and will be beneficial.

“Again, you have to realize and have to build this into the model that those CPO leased units are going to have a very high return rate, because in this instance, the franchised dealer it will come back to really doesn’t have a lot of appetite for that aged category of vehicles,” Webb went on to say.

Back in April, Ally rolled out what it called SmartLease, a program that is associated with more than 35 models with plans to expand “where there’s a meaningful payment differential” for the consumer,” according to Tim Russi, Ally’s president of auto finance.

“As we looked at that, the answer that came back was, ‘there’s a lack of providers for a used solution,’” Russi told Auto Remarketing back in April.

“We saw it as a good opportunity to satisfy what we think is a consumer preference,” Russi continued. “There’s no reason why used can’t be as big as new — in fact, I would suggest it could actually have a larger penetration than new, just because the pool of financing in used is larger.”

Toyota is ramping up its leasing option in the Toyota Certified Used Vehicle program, too, which was first reported by Automotive News.

In an interview with Auto Remarketing to discuss TCUV’s 20th Anniversary, Bill Fay — the group vice president and general manager of the Toyota division at Toyota Motor Sales, U.S.A. — said TCUV leasing has always been an option, but now they’ve essentially made it easier for dealers to use as a TCUV retail tool.

Toyota also worked with Toyota Financial Services and refined some of the residuals.

“This effort by Toyota is something totally different, and we’ll have to see how it grows,” Webb said.

When discussing used-vehicle leasing in general, Webb added, “I think everyone is going to try it. It will obviously be dependent upon how successful it is and what the adoption rate is.”

Webb also turned into a bit of a statistics professor when elaborating about the potential used-vehicle leasing has when it’s connected to a CPO model.

“Predicting the residual value for a CPO unit should be a lot easier statistically speaking because you have a much smaller percentage,” he said. “You have the history of the vehicles since you know what it’s done in the market up until that point. It is going to be much smaller and much more predictable, which from the lessor standpoint is a good thing.

“But it really makes it less enticing for the lessee. It’s the old saying you lease things that depreciate. You buy things that appreciate,” Webb went on to say.

So as a result, the industry is back to the “balancing act” Webb previously mentioned.

“In terms of the OEMs, obviously their biggest exposure is in their off-lease portfolios. Their repo volumes are relatively low since they deal in prime credit,” Webb said.

“In terms of that off-lease portfolio, there are several things you can do, a strong remarketing practice, a CPO program, all of those things help,” he continued. “But at the same time, more importantly, you can’t be competing against yourself in terms of those off-lease units in trying to initiate a new lease with an extremely low monthly payment with no money down to people with less than stellar credit because they’re going to flock to the new units.

“They have a lot of levers under their own control but to a certain extent they're in cross purposes with each other because you want new-lease originations but you also want to support the residual values of your off-lease units that you have to remarket,” Webb went on to say.

Senior editor Joe Overby contributed to this report.