This year began with Auto Remarketing and Wall Street observers peppering Manheim’s Tom Webb with questions about rising off-lease volume, which has a projected level of about 2.5 million that the auction company’s chief economist called, “average.”

Webb made that vanilla assessment of off-lease volume expectations because the industry pushed significantly more than 2 million units a year through that wholesale channel between 1998 and 2010, according to Manheim’s data.

“Off-lease volumes have been the top story in the industry for some time now. To a certain extent, it’s been a story that gotten ahead of itself I believe,” Webb said. “Sure, we’ve had some nice percentage increases. But it is off a ridiculously low base. Last year’s off-lease volume was the fourth lowest in the past 20 years.”

So what story should Auto Remarketing and investment analysts be watching?

“The real off-lease story is a couple of years from now. I just hope I’m around to report it because for the most part it’s going to be a good story, especially when we consider it from a retail aspect,” Webb said last week when he conducted his first conference call of the year.

“Up until now the recovery in new-vehicle sales has been driven by pent-up demand. By definition, that is not a sustainable force,” he continued. “We now have the opportunity to transition to an industry where current sales are supported by returning lessees. And not just any type of returning lease customer; it’s a satisfied one.

“That pretty much describes utopia from a dealer’s perspective,” Webb went on to say.

By 2018, Manheim is projecting off-lease volume and new-vehicle lease originations to set new highs with dealers originating nearly 4 million leases and auctions seeing more than 3.5 million units going down the off-lease lanes.

“One of these days I believe the experts will realize that leasing can protect residual values, not just destroy them,” Webb said.

Price Stability

As reported by Auto Remarketing last week, the Manheim Used Vehicle Value Index — a measure of wholesale prices adjusted for mix, mileage and season — came in at 123.9 to close 2014, a 1.8 percent uptick from a year ago and 2.1 percent higher than the third quarter. Webb pointed out the reading represented the least volatility in wholesale pricing for a four-year span since the index inception in 1995.

“To be sure, a lot of macroeconomic and industry factors are contributing to that stability,” Webb said. “But I think we also have to give credit to better and more efficient remarketing practices, which enabled the commercial consignors to anticipate, respond to and thus minimize impending swings in wholesale pricing.”

If the industry were to rewind back 13 years — before the days of sophisticated online sales and more technological advances — Webb would have offered a dark wholesale price forecast.

“If we had the same processes that we had in 2002, I, too, would be worried about a collapse in wholesale pricing. We do not, so I am not,” he said.

High-Mileage Rental-Risk Units

Manheim reported average prices for rental risk units sold at auction in December rose on both a month-over-month and year-over-year basis.

“After adjusting for broad changes in mix and mileage, prices for rental risk units have moved in a fairly narrow range over the past four years. Achieving that stability last year was no small feat, given the disruptive forces of harsh weather early in the year and massive manufacturer recalls throughout the year,” Webb said.

Also of note, Webb mentioned the number of rental risk units sold at auction in December was considerably higher than the low level of the previous year.

Furthermore, average mileage soared to a new high with December topping the 47,000-mile mark. Many of the exceptionally high-mileage units sold in December were concentrated in the minivan and sports car segments.

“Both categories handled the higher mileage with little impact on pricing,” Webb said. “If you look at some of the prices that these vehicles got and compared them to what they were getting with 40,000 miles versus 50,000 miles, dealers had no problem paying for the higher mileage.”

Quick Thought on CPO

Webb briefly touched on the performance of certified pre-owned sales, which came in at 2.34 million units, according to Autodata Corp. The figure represented a record for the fourth year in a row and an improvement from the 2013 total of 10.8 percent.

Can the industry make a drive for five and gain another 10 percent or more in sales?

“It’s always depending on how much marketing efforts the manufacturers want to put behind them,” Webb said. “You would anticipate a fifth consecutive record to occur, but a double-digit increase would probably be overly optimistic.”