What Could Off-Leasing Boom Mean in 2014?

by Jon LeSage, remar­ket­ing edi­tor at Auto­mo­tive Digest

The off-lease wave is ris­ing. What might that mean for new and used vehi­cle sales?

Off lease returns are grow­ing in num­bers as expect­ed from the high vol­ume of new vehi­cle leas­es writ­ten 2010 – and that off-lease trend will grow into next year.

Leas­ing turned things around for vehi­cle sales three years ago – fueled by low inter­est rates, ris­ing resid­ual val­ues, and sweet deals from automak­ers with low­er month­ly pay­ments.

Now, more off-lease cus­tomers are start­ing to return to the mar­ket. Here are some of the ques­tions automak­ers and deal­ers are pon­der­ing:

  1. What does it mean for brand loy­al­ty and cus­tomer reten­tion? Off-lease cus­tomers tend to be good for reten­tion, but the com­pet­i­tive land­scape is get­ting intense with incen­tives and low-priced month­ly pay­ments being pro­mot­ed. Gen­er­al Motors entered the race last month after being away for a long time.
  2. Automak­ers have been very care­ful about watch­ing their num­bers this time around – match­ing pro­duc­tion and demand and being more cau­tious about incen­tives than they were years ago. Will that con­tin­ue?
  3. What do you do to keep off-lease cus­tomers in the chan­nel? Ear­ly buy­outs can work, but the costs can shoot up as of-lease vol­ume and com­pe­ti­tion ris­es.
  4. Auto lenders have been soft­en­ing their under­writ­ing stan­dards this year as cus­tomers do a bet­ter job of mak­ing their pay­ments and com­pe­ti­tion in the finan­cial mar­ket ramps up. Leas­ing has been grow­ing in this envi­ron­ment. What if lenders have gone too far?
  5. Are automak­ers, deal­ers, and lenders being real­is­tic about resid­ual val­ues? Leas­ing price com­pe­ti­tion has been pushed by Toy­ota, Hon­da, and oth­ers. What if the resid­ual fore­casts and their low month­ly pay­ments lead to a finan­cial cri­sis in the next year or two?

Sources:
Auto­mo­tive News
Bloomberg

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