Millions of vehicles will come off lease in the U.S. in 2016, and bracing for the onslaught are remarketers.
They are responsible for reselling off-lease vehicles that typically are 2 and 3 years old. In 2014, lease units accounted for about 26% of vehicle deliveries. About 3 million vehicles will come off lease this year compared with about 2.5 million last year. Remarketers are doing their warm-up exercises.
“If we show discipline and consistency, we’ll get through this,” says Steve Solomon, vice president-asset remarketing for Santander, an automotive finance company.
“The challenge is to come up with different ways to remarket those vehicles,” says Brad Bollman, GM Financial’s vice president-remarketing. “You can’t just scale up by adding a new (auction) lane.”
Adds John Manchin, Subaru of America’s national fleet remarketing manager: “Everyone is talking about the increase of cars that will be coming back. Use every channel to sell. It’s all about getting the right car to the right place in front of the right buyer.”
They are among panelists at a session of the annual National Remarketing Conference. Busy as they’ll be, no one is going to code red. “Retail demand will absorb those cars,” Bollman says, referring to a vibrant used-car market that in a good year exceeds 40 million transactions.
But certain economic supply-and-demand inevitabilities are expected to kick in as the off-lease vehicles make the scene.
“As everyone has cars coming back, values will go down,” says Andrew Carlstrom, Chase Auto Finance’s manager-vehicle marketing. “We expect cars going to auction will more than double by 2017.”
That’s good news to auction operations like Manheim and ADESA. But brick-and-mortar auctions represent only one way to remarket vehicles today. Internet auctions are increasingly popular with dealers.
“Dealers are much more comfortable buying cars online,” Bollman says. “We’ve built confidence levels with good online description of cars and evolving technology. We’ve seen a big change in behavior.”
When dealers buy cars at online auctions, what they see on their computer screen better be what they get. Or else.
“They’re all looking for confidence in the transaction,” Bollman says. “There should be no unexpected problems that weren’t shown online. It’s easy to lose buyer confidence. It’s hard to get it back.”
But return policies provide some consolation. “Every now and then, we get a dog, and they take it back, but we’ve had success with Internet auctions,” says dealer Don Luke of Bill Luke Chrysler-Jeep-Dodge-Ram in Phoenix, AZ.
Online auctions offer a reach that local physical auctions don’t. “To be able to sell to dealers 1,500 miles away is a big benefit to us,” Bollman says.
Remarketers speak of upstream, midstream and downstream when it comes to reselling off-lease vehicles.
Upstream refers to when a vehicle is acquired by a dealership from which it was leased. It joins others on the store’s used car lots. Every major automaker operates a certified pre-owned vehicle program in which off-leased vehicles are reconditioned (if necessary), warrantied and sold at a used-car premium.
Midstream is when a lease vehicle is sold online. Downstream is when it ends up at a physical auction. Because remarketers must transport it there, handling costs are higher.
“We’re looking at all channels available,” Bollman says. Those include simulcast, open, closed and cooperative auctions. Access to all options is important “when you are going to two-and-a-half-times volume.”
With auto sales setting a record in 2015 and expected to do the same in 2016, the number of future off-lease vehicles will keep growing. Manheim Consulting predicts it will reach 4 million in two years. That gives industry people pause.
“Let’s not kid ourselves,” says Tom Webb, Manheim’s chief economist. “Four million in 2018 will be a challenge, even under the most optimistic retail conditions.”
