The used-car market will feel pressures this year, says Tom Kontos, chief analyst for ADESA Corp. which runs a chain of car auctions

Part of the pressure is because of leasing reductions by auto makers' captive lenders and banks in recent years.

Burned by overly generous leasing deals of the 1990s, leasors backed off those end-of-term losers and established more realistic forecasted residual values of off-lease vehicles.

Using incentives, auto makers have encouraged consumers to buy rather than lease vehicles.

“Off-lease vehicles have fallen from 1.9 million in 1999,” says Kontos. He estimates they will drop to 1.1 million by 2007. “That means an ongoing volume shortfall into the remarketing stream.”

Meanwhile, generous incentives on new models hurt pre-owned vehicle prices despite efforts by automakers to moderate costly rebate programs, he says.

He explains, “The used-vehicle market is feeling the impact on brand resale values of the rich rebates paid out to stimulate new-car sales two and three years ago. What auto makers paid out in late 2001 and 2002 has baked in on new models now, whether trade-ins, off-lease or off-rental.”

“If rebate fatigue is setting in on new cars — and I think it is on many brands — then high-quality used vehicles could win back buyers turned off by higher-priced and fully contented new units, without the rebates or subvented lease payments.”