ATLANTA -

Manheim’s Tom Webb looked to ease remarketing executives who might be anxious about how complicated their jobs could become as off-lease volume surges next year and beyond by saying this: it’s not 2002.

Webb pointed to a host of reasons why the remarketing divisions of captive and commercial lessors are in much better shape to handle off-lease volume that Manheim expects to approach 3.5 million units by 2017 and beyond.

“Let’s face it. Leasing is sort of like that girl in the nursery rhyme. When she’s good, she’s very, very good. But when she’s bad, she’s horrid,” Webb said during his quarterly conference call earlier this week.

“Frankly, there are some lessors today that are worried about the future impact of residual values from this growing volume. Dealers, meanwhile, are looking forward to the thousands of returning lessees who will be returning to their showrooms every day. Of course, dealers wouldn’t be totally upset if vehicle values fell somewhat because it might help maintain growth in the short term.”

Veterans in the used-vehicle remarketing and retail spaces might remember what happened the last time off-lease volume surged to a level Webb and Manheim are projecting. The industry saw off-lease volume approach 3.5 million units back in 2002 thanks to a bevy of leases written three years earlier.

What was life back in 1999? Discussions about Y2K filled headlines, dealers and consumers didn’t have laptop-level devices in their pockets and Webb recollected how poor leasing strategies unfolded and their ramifications.

“I would say there is supply and then there is supply,” Webb said while emphasizing the second part of his statement. “There was a supply of off-lease units that we had coming back in 2002 on 1999 leases. Most of those were leases done wrong. The guidebooks were overly optimistic with respect to residuals and then the lessors bumped those residuals 3, 4, 5 percentage points or more.

“And what type of unit did we put into leases during that period? Quite frankly, the one that couldn’t be retailed, the purple one with the stick shift. And what kind of customers did we put into a lease? The one who couldn’t get financed, the 600 FICO with no down payment,” Webb continued.

“So in 1999, we had already baked in a situation that wasn’t going to be pretty. Then the retail market that these off-lease units came back into in 2002 was not all that robust,” he went on to say.

Fast forward to this year and into 2014. Webb likes where the situation sits.

“I don’t pretend to be Pollyannaish here. As you know, that’s generally not my nature. But I would contrast (2002) to what we see with the 2011 leases that will be coming back this year because for the most part these leases were with the right residual, the right car and the right customer. I also firmly believe the retail market that they will be coming back into will be relatively strong.”

So if that’s the case, why would Webb say some remarketing executives are showing some apprehension about where residual values might land? Again, Webb turned to his descriptive capabilities to answer the question.

“At some institutions today, the remarketers are already concerned over next year’s lease volume. But at the same time, at those leasing institutions, the origination side of the business is writing leases at a record rate. This is sort of akin to that person who frets about their weight all the while they’re going to the all-you-can-eat buffet,” Webb said.

“While the 2016 off-lease volume could be a problem, they certainly will be if the remarketing industry doesn’t start developing plans now. And believe they will develop the plans because they need to because lease penetration rates today are neither bad nor at an abnormal setting. It is good and I think it’s the trend of the future,” he went on to say.

The additional off-lease volume means activity in those specific auction lanes is likely to intensify. Webb pointed out how for much of the past couple of years, the grounding dealer usually did not let an off-lease unit leave the lot.

“This year and last year, even in 2010, the return rate —the grounding dealer didn’t buy it and the lessee didn’t buy the unit — was at extremely low levels essentially because in many instances the market value of the vehicle was higher than the residual contract value so obviously the grounding dealer bought it,” Webb said.

“I don’t see that return rate going back to where it once was because the lessors — and by and large they are captive lessors — have the ability and the desire to provide carrots and sticks to the grounding dealers to buy those units at the end of the term,” he continued.

“The dealers are obviously making good profits on those units. They want them. But some lessors are going to have such a volume of product coming back that even though the grounding dealer can make money off of them, there is a saturation point they can’t handle them all. Some of those units have to go outside of the dealership network,” Webb went on to say.

And when that saturation point hits at brand stores, other franchised dealerships and independent lots likely will benefit because of the ability to procure these off-lease models through various wholesale channels. Again, Webb referenced 2002 as to why this trend is good for the industry.

“When we had a last big round coming back in, say, 2002, leasing was somewhat in its infancy. Some of the remarketing approaches had not been developed yet like they are today,” Webb said.

“You now have a strong remarketing organization at all of these lessors. They have experience and have established the certified pre-owned programs, which obviously are very supportive,” he added. “They’ve established programs with their dealer network in order to help them secure those units and to help them retail them afterward because that’s what the dealer is interesting in doing.

“We’ve made a lot of progress with all of that compared to the last cycle.”

Nick Zulovich can be reached at nzulovich@autoremarketing.com. Continue the conversation with Auto Remarketing on both LinkedIn and Twitter.