Manheim’s Tom Webb Optimistic About Leasing

Auto Remarketing

Man­heim chief econ­o­mist Tom Webb says high­er new-vehi­cle leas­ing this year will result in healthy returns for the used-vehi­cle indus­try.

Find out more about 2013 leas­ing pen­e­tra­tion and its mul­ti­ple effects.

Man­heim chief econ­o­mist Tom Webb first cit­ed data from J.D. Pow­er that indi­cat­ed more than 3 mil­lion new-vehi­cle leas­es will be writ­ten this year, thanks to a pen­e­tra­tion rate well above 25 per­cent.

With those num­bers in mind, Webb con­tends those lev­els can — and should — move even high­er, result­ing in healthy returns for the used-vehi­cle indus­try.

“The shift in the new-vehi­cle mar­ket has been increas­ing skewed toward high­er-income house­holds,” Webb said dur­ing his quar­ter­ly con­fer­ence call on Mon­day. “That is a trend which will con­tin­ue. I believe these peo­ple like to trade on a short cycle and there­fore leas­ing is the pre­ferred prod­uct for them.

“As a mat­ter of fact, I strong­ly believe there more peo­ple today in a very long retail con­tract that would have been bet­ter off in a lease than peo­ple who are in a lease and should have been in a retail con­tract,” he added.

Ear­li­er last month, Exper­ian Auto­mo­tive report­ed that of all new vehi­cles financed in Q2, leas­es account­ed for an all-time high of 27.64 per­cent dur­ing the time­frame, up from 24.4 per­cent in Q2 of 2012.

Accord­ing to the lat­est State of the Auto­mo­tive Finance Mar­ket report from Exper­ian, the aver­age month­ly pay­ment for a lease con­tract writ­ten in the sec­ond quar­ter came in at $408 for 35 months.

“In terms of where that lease pen­e­tra­tion rate can go, I wouldn’t put any par­tic­u­lar lim­it on it. It eas­i­ly could go up anoth­er cou­ple of per­cent­age points high­er with­out being done poor­ly,” Webb said.

Webb point­ed to one spe­cif­ic fac­tor that could derail lease orig­i­na­tion from climb­ing.

“What could upset it all if the lessors start to see some resid­ual loss­es,” Webb said. “Once those loss­es start to come in, they can snow­ball quite a bit and that would cause them to pull back from orig­i­na­tions.”

 

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