ATLANTA -

With lease penetration rates on new-vehicle sales reaching new highs, an industry observer mentioned to Manheim chief economist that some analysts have expressed concern and say that leasing is being used to boost sales artificially.

Webb replied to that inquiry while also answering whether there is a “natural” lease penetration rate that, if exceeded, hurts future residuals. He began his response in the Q&A section of the Manheim Auto Industry Brief for September by saying he thinks lease penetration rates should be higher.

Experian Automotive reported that of all new vehicles financed in the second quarter, leases accounted for an all-time high of 27.64 percent during the timeframe, up from 24.4 percent in Q2 of 2012.

“I firmly believe that today there are more people in long-term retail contracts who should be in leases than there are people in leases who should be in retail contracts,” Webb said.

Webb pointed out there are factors that he believes are “incorrectly” driving some people into a retail contract when a lease would be a better fit for them, including:

—The pullback from leasing during the financial collapse was severe. “That means there are many salespeople today who don’t even offer the lease product because they are not used to, or are untrained, in selling it,” Webb said.

—Compensation packages (whether for upfront grosses, F&I products, salespeople, or general managers) will, for the short-term-oriented, often favor the retail contract over the lease.

—The dearth of off-lease returns (just now easing) has meant a significant reduction in the most logical lease customer — a returning lessee.

“If you believe, as I do, that future new-vehicle sales will continue to become increasingly skewed toward high-income households, then lease-penetration rates should trend up over time. because these are the very households that want to trade on a short and regular cycle. Putting this type of customer into a 72- or 84-month loan may garner near-term profits, but it will breed long-term customer dissatisfaction,” Webb said.

“That said, the sheer volume of new lease originations (set to approach 3.2 million this year) could pose a challenge to remarketers. if not overly subvented at origination, a lease return is viewed by the lessor and grounding dealer as an opportunity to sell a satisfied customer another car. if overly subvented, however, that lease return means a downward spiral in both residual values and customer satisfaction,” Webb went on to say.

Continue the conversation with Auto Remarketing on both LinkedIn and Twitter.