Consignors take savvier approach to off-lease volume


NEW ORLEANS - 

George W. Bush was not even two full years into his first term as president the last time off-lease volume hit a true peak.

That was 15 years ago and the auto industry has gone through, shall we say, a bit of change since then.

Off-lease volumes that year were just under 3.5 million units, according to data in Manheim’s 2017 Used Car Market Report. This year, Manheim projects a record 3.6 million vehicles coming off lease, which would also be the fifth straight year volumes have increased. 

But the peak won’t even occur until 2020, when 4.6 million off-lease vehicles hit the market, Cox Automotive Inventory Solutions president Janet Barnard said during a press conference here at the NADA Convention & Expo.

This time around, it also appears that the industry better equipped to handle such volume floods.

“I would say, first off, that they’re definitely handling it better,” Cox Automotive chief economist Tom Webb said of consignors, who would typically be the ones selling these vehicles in wholesale channels. “There’s obviously been a big structural shift in the industry.

“The last peak in off-lease volumes was way back in 2002. And that’s when you actually had a significant amount of leasing being done by banks, who really didn’t have the inherent interest in protecting residual values, didn’t have all the levers and strings that a captive lessor can control,” said Webb, who spoke with Auto Remarking by phone shortly after the convention.

Not only is the remarketing environment different this time around, consignors are keenly aware of the volumes expected, Webb said. And they’re aware that certified pre-owned programs, where many off-lease units end up, compete to a degree with new-car sales.

And, Webb added, consignors, “to a certain extent, have reserved moneys, knowing that there might be some end-of-term losses ... proactive policies like that.

“And certainly in terms of remarketing, we’ve always been in the situation where the consignor has a greater knowledge of the market and where to put these vehicles,” he said. “Because your off-lease volumes may be coming back in a region of the country where the demand is really not there and is probably stronger somewhere else; so, you always have that option of whether to ship the cars to the buyers or bring the buyers to the car, in terms of eyeballs, through simulcast, etc.”

They’re apt to experiment when different methods of handling volume gains, Webb said.  And consignors are also using analytics to arrive at those distribution decisions, says Anil Goyal, who is Black Book’s senior vice president of automotive valuation and analytics.

“There’s a lot of analytics going on around that as to when do we want to push that product into the auction lanes,” Goyal said in an interview at NADA. “It used to be that, three or four years ago, when volume came back, (they said) let’s just push it to the auction next week. 

“I think they’re being more savvy around, hey, let’s distribute the volume from a timing perspective,” he said. “Let’s distribute the volume from a (regional) perspective, where that vehicle needs to be shipped. Especially on off-lease, it tends to be focused more on certain regions like the Northeast and California.”

Other strategies being implemented include direct-to-dealer sales and programs that that incentivize franchised dealers to purchase off-lease units, Goyal said.

GM Financial, for instance, utilizes both of those methods.  Nick Heinz, who is the company’s vice president of remarketing solutions, said in an interview here that GM Financial hopes to further engage its dealers with its online platform, GMFDealerSource.com

When asked if GM Financial has any sort of collaborative work with the General Motors CPO program, Heinz pointed to the captive’s dealer-facing incentive program called GM Financial Dealer Dividends.

Dealers might earn dividends for originations engagement and buying grounded lease vehicles, Heinz said, which then go into their dividends bank.

Dealers can put those dividends towards a variety of different things on the new- and used-car side, he said, including reimbursement on certified pre-owned fees, for example.

Point is, there are many ways to handle this challenge.  

“It’s a matter of just being very cognizant about when that product comes back, let’s not just push it all in one channel,” Goyal said, “and (instead) distribute it across channels and across markets.”

And automakers and their lending arms/partners certainly have to find a balance between the amount of leases they write and the potential impact to residual values, says Jessica Caldwell, who is executive director of industry analysis at Edmunds.

So to strike that balance, automakers are turning to tactics like mileage restrictions, longer leases and adjusting the timing on lease returns, she said.

In other words, not pulling back massively on the amount of leases, but rather maneuvering around the amount hitting the market.

“All of that,” Caldwell said in an interview here, “trying to just optimize all the vehicles coming back off of lease returns.”

 

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