SAN FRANCISCO – New-vehicle leasing continues to make a comeback, steadily climbing out of its 2003 nadir.
Despite an overall decline in new-vehicle sales, lease originations rose to 2.8 million units in 2007, increasing for the fourth straight year. That is up about 40% from 2003, but well shy of leasing’s 3.7 million-unit peak in 1999.
However, today’s leasing industry is healthier, relying less on subvention from auto makers and more on putting customers in the right vehicle with terms that meet their needs, says Tom Webb, chief economist of Manheim Consulting and principal author of Manheim’s 2008 Used-Car Market Report.
"We’re not going back to 1999 lease percentages, but back then many people were leasing because they couldn’t buy the vehicle," Webb says at the National Automobile Dealers Assn. convention here.
Many of the 2.4 million off-lease vehicles remarketed last year went through Manheim Auction’s lanes. Webb says lessors have greatly improved their end-of-term remarketing processes and do a better job of estimating vehicle residuals.
Consequently, they are not suffering the massive losses of past years, when estimated residual values turned out to be far less than actual resale prices.
Webb says leasing’s comeback doesn’t surprise him.
"It is a great product if a customer wants a regular trade cycle and doesn’t want to take on the residual risk," he says.
He estimates the off-lease vehicle count will hit 2.75 million units in 2009. He expects leasing will gravitate to its “natural level,” which he pegs at 25%-28% of new-vehicle deliveries.
Here are the highlights of Manheim’s 2008 Used-Car Market Report, which, despite its title, also covers new-vehicle activities:
- Auction Activity. North American auctions remarketed 9.6 million used vehicles in 2007. Wholesale pricing rose for most of the year before falling in the fourth quarter.
- Dealer Profits. Retail used-vehicle sales volume fell for the second straight year, though the average price of $8,186 reached its highest level since 2004. For franchised dealers, their net profit on used vehicles was $257 more than it was on new vehicles.
- Rental Fleets. New-vehicle sales into rental fleets declined 8% to 1.9 million, as domestic auto makers decreased their unit numbers. The total rental-fleet market share for domestic manufacturers dropped from 80.8% in 2006 to 73.3% in 2007. "That is one market-share decline the domestics wanted," Webb says.
- Non-Rental Fleets. New-vehicle sales increased for the fourth straight year, with foreign brands and fuel-efficient models increasing in popularity.
- Financing. Average auto-loan maturities continue to lengthen, and auto financing at attractive rates remained despite turmoil in the broader credit market, such as subprime mortgages.
- |Repossessions. These rose 10% in 2007, reaching their highest level (1.51 million) since 2003. "It’s logical to assume they will be up this year," Webb says, citing an economic slowdown. "The economy has an impact on repossessions, and we would really see an impact if unemployment rises." More repossessed upscale vehicles are showing up in auction lanes of late, he adds.