WESTLAKE VILLAGE, Calif. -

Dealers are already challenged in their used-car operations from the lack of end-of-term lease volume, and the popular theory is that it will only get leaner in the coming months due to impact of the leasing erosion that began in late 2008.

The dry-up in off-lease volume is expected to last for quite some time, but when exactly will volumes get back to normal?

According to J.D. Power and Associates senior director Thomas King, the level of off-lease supply that the used-vehicle industry enjoyed earlier this year and late last year likely won’t be reached again until 2013.

“We are now entering the phase where the volume of off-lease units will drop significantly, reflecting the combined impact of a) reduced industry sales three years ago and b) reduced leasing by several manufacturers three years ago,” King explained to Auto Remarketing.

“Since overall industry sales remained at lower levels for several years and several manufacturers maintained very low lease penetrations for an extended period, the limited supply of off-lease units will continue for some time,” he added.

While it may be 2013 when off-lease levels improve, CNW Research believes that overall used volume may benefit significantly the following year from a current trend in the leasing environment: an increase in the number of households that have more than one lease.

During the first half of the year, the percentage of multiple-lease households jumped from less than 15 percent in full-year 2010 to 16.3 percent, according to CNW. In 2009, that proportion was below 15 percent, as well.

“In turn, that is a good indicator of improved used-vehicle supply of one to five year old models in 2014 and beyond,” said CNW president Art Spinella.

Of course, off-lease volume is the bread-and-butter source of certified pre-owned inventory, Spinella went on to explain.

“The decline in leasing during the first half of the century resulted in growing shortages of these popular used models and in large part sent used prices higher,” he noted. “As leasing has increased, however, with most contracts in the three- and four-year range, future supplies are looking fairly good. Certainly not as robust as in the early 2000s, but certainly better than it has been.

“There is a significant difference today versus past years of multiple-lease households. Rather than leasing a car for emotional reasons, today’s lessee is leasing to keep payment down,” Spinella continued. “Regardless of reason, the uptick in leased models will be a positive for future used business.”

July Leases Drop from June

As for the most recently completed month, the industry’s lease penetration declined from the month-ago level, coming in at 18.9 percent, according to J.D. Power and Associates. In June, it came in at 19.8 percent. July’s lease penetration did beat year-ago levels of 18.4 percent, though.

Explaining the month-over-month decline, King boiled it down to two major factors.

“Lease mix typically falls in the summer months as manufacturers enhance incentives to clear out old-mode- year inventory, often adding cash or finance related incentives that tend to reduce lease penetration,” he began.

As for the second element, King said: “Since old-model-year vehicles typically have lower residuals (than new-model-year vehicles), which decline as the model year progresses, they tend to have relatively higher monthly payments (assuming lease incentives don’t chance), which makes cash/finance purchases slightly more attractive (all other factors equal).”

Moving along, among individual segments, compact premium conventional vehicles had the highest penetration in July at 50 percent, followed by compact conventional and midsize conventional segments, each of which were at 26 percent.

When asked to spotlight some of the more noteworthy shifts among segments, King pointed to compact utility vehicles and midsize vans.

Each of these segments saw more than a 4 percentage point drop month-over-month in lease penetration due largely to the aforementioned downward pressures on the overall industry, “plus some OEM-specific incentive actions that favored cash and finance offers.”

Breaking it down further, large pickups had lease penetration of 4 percent, compact CUVs were at 16 percent, midsize CUVs were at 17 percent, subcompacts came in at 8 percent and lease penetration for midsize utilities reached 25 percent.

Midsize vans were at 16 percent with large conventional models hitting 20 percent.