FORT LAUDERDALE, Fla. -

With leasing levels ramping up to above pre-recession levels, the potential impact this trend could have on residual values is top-of-mind for manufactures, and it would seem, dealer groups, as well.
 
During AutoNation’s third-quarter earnings conference call last week, the topic came up as a question from Credit Suisse AG’s Research Division during the Q&A portion of the call.
 
AutoNation execs were asked about the percent of lease turn-ins being bought and retailed at the stores, and if the company was seeing any changes with residual values being above market prices.
 
Michael Maroone — the president, chief operating officer and director at AutoNation — said he has not seen any retention “deterioration”, noting the used-car market has “held up very well” over the summer.

“I think that the used-car market is very strong. It's especially strong in the 2- to 3-year cars coming off lease. Those are performing at a very high level. The longer-term leases that have higher miles are probably where they are supposed to be, so I don't see any deterioration,” he said, according to a quote published in a presentation transcription of the dealer group’s conference call by Seeking Alpha that can be found here.

 
Maroone also touched on the fact that the influx of off-lease vehicles spells good news for the CPO market.

“The used-car market held up very well over the summer, and we are active buyers of off-lease product. We think they're very good for customers. They provide big CPO opportunities, and our CPO business is growing even faster than our used business overall,” Maroone said, according to the transcript.  
 
And though residuals may not be feeling the effects of the increase in leasing as of yet, CNW Research cautioned the industry last week what may be in store in the coming years.

Automakers are writing lease deals at origination levels rarely seen nowadays, but CNW’s analysis of current contracts prompted the firm to insist a severe financial storm front could be coming.

CNW indicated that automakers’ drive to increase leasing share is putting them on a track to lose from $5 billion to $8 billion within three years.

“Leasing deals are increasingly important to new-car shoppers, and automakers are more than willing to put a customer into a short-term lease,” CNW president Art Spinella said in this month’s edition of the firm’s Retail Automotive Summary.

“But the competitive nature of such lease deals is causing many automakers to overvalue future residual values by 5 to 10 percent in order to get monthly payments lower,” Spinella continued.

For more information on how leasing numbers could impact the future used-car market, see the Auto Remarketing story here.

 

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