Residual Losers Still Out There

LAS VEGAS — In the wild leasing days of the late 1990s, it was easy to know which vehicles coming off lease would carry residual losses, says Philip Sampieri, vice president of RVI Analytical Services Inc.

“They were all upside down,” he quips, recalling a time when leasing companies, banks and auto makers' captive finance firms sustained hundreds of millions of dollars in losses when overly optimistic residual forecasts crashed into true values.

The money losing stunned the industry, which backed off leasing. But it also led to more conservative residual predictions, a more stabilized market and a current leasing resurgence.

Today, it is harder to identify off-lease residual losers, because there aren't nearly as many in vehicle portfolios. But they are out there, and a new Web-based forecasting system, among other things, helps red-flag them for portfolio managers.

Developers introduced the new system at the National Automobile Dealers Assn. convention here, touting it as an easy, timely and precise way to keep track of current and future vehicle valuations.

Developed by RVI and NADA Analytical Services Group (formerly the NADA Official Used Car Guide Co.), the system first allows subscribers to import their vehicle portfolios into an online application.

Then it helps remarketers, leasing firms and fleet managers oversee portfolios by providing them with data on trade-in values, used-car appraisals and RVI forecasts of what vehicles likely will be worth when they come off-lease and enter the remarketing arena.

System subscribers also will receive estimates, based on tracking of collected consumer behavior, on the likelihood that a customer driving a particular leased car model will keep it for the full term of the lease or turn it in early.

The system provides reports by model, make, segment and model year, among other categories. Various data sources are used, including Ward's NADA, auto auctions and RVI, itself.

RVI is a firm that offers lessors insurance against residual losses. “So we have a lot of money riding on our predictions,” Sampieri says.

He adds: “Portfolio risk management became so important when leasing was so upside down” during bloodletting residual losses of the late 1990s.

The trick these days is being able to separate the winners from the losers, Rene M. Abdalah, an RVI Group vice president, says.

For example, culprits coming off lease with dramatic residual losses include the Mercedes-Benz CL (about $13,000) and Jaguar S-Type (about $7,000), he says. Other off-lease losers include the Volvo C70, Toyota Sienna and Ford Windstar.

But the losses are scattered and nowhere near the carnage of the last decade.

Indeed, says Abdalah, “we're starting to see some gains,” with off-lease vehicles actually worth more than their residual predictions set at the beginning of their leases.

Improvements in accurate residual forecasting have been “dramatic,” Sampieri says.

“All lessors have learned their lessons from the late 1990s,” he says. “At least we think they have.”