Lease returns have been one of the dominant discussion points in the auto industry over the last few years, and rightfully so, given the influx in volumes that are now approaching a peak. 

But when you think about lease returns and their impact to wholesale markets, only a “subset” of the off-lease volume ends up reaching the auction lanes, Cox Automotive chief economist Jonathan Smoke said in a conference call with analysts and reporters earlier this month.

Many cars coming out of leases end up being bought by the lessee or kept by the grounding dealer.

“In fact, the grounding rate goes up as the desirability and equity position of the vehicle improves. Our analysis confirms that the mix of vehicles is improving,” Smoke said. “One-third of this year’s maturities are crossovers. All of the growth in maturities is coming in SUVs and pickups. And we’re seeing improving equity position, as well.

“Correspondingly, fewer maturities are making their way to the auction. In addition, dealers do not need to consign as many vehicles because of strong retail demand,” he said.

Overall wholesale numbers

This analysis on off-lease was part of a larger discussion on the wholesale vehicle market during the July 9 conference call and within an accompanying analysis. 

Cox Automotive anticipates wholesale volume to be at 16.2 million this year and 16.5 million next year, up from 16.1 million in 2017. 

But that increase is far from the previous hikes from15.4 million to 16.1 million between 2016 and 2017, and the jump from 14.5 million in 2015 to 15.4 million in 2016..

Sharing some analysis by segment, wholesale volume from factory/fleet, repo, rental and dealer consignment are all likely to be static this year, according to the Cox data.

And even though off-lease is the only one expected to grow, Smoke points out that even those gains are slowing.

“Repossessions continue to be flat, as defaults remain low as a result of very low unemployment and higher take-home pay from tax reform,” he said. “Rental-risk sales are down as rental car companies seem to be maintaining or even growing their fleets again but are also moving more rental-risk sales direct to consumer or dealers and avoiding the auction channel, entirely.

“The end result is that wholesale volumes will be flat this year, and when viewed by channel, digital is growing and upstream channels are growing, but physical auctions will be down,” Smoke said. “Therefore, for many dealers — especially independent — wholesale supply is indeed down.”

Volume by channel

Regarding his point on volume by channel, traditional auction volume is expected to decline from 10 million units in 2017 to 9.8 million this year and 9.6 million in 2019.

Commercial direct-to-consumer volume is forecasted to climb from 600,000 units in 2017 and reach 700,000 both this year and next.

Direct-to-dealer/dealer-to-dealer volume is likely to hit 4.7 million this year, up from 4.3 million last year. The forecast for 2019 is 4.9 million.

Off-site digital volume is projected to climb from 1 million in 2017 to 1.2 million in 2018 and 1.4 million next year.

Along those lines, there was record growth for the digital channels of the Manheim Marketplace in the first half of the year.

Digital transactions, volume and sales climbed double-digits for Manheim, the auction company said in a news release.

What Manheim calls “digital offsite dealer sales,” or sales that happen beyond the physical auction, were up 32.6 percent year-over-year in the first half.

“We are feeling bullish as we see an increase in cross-channel buying and selling, the cornerstone of the Manheim Marketplace,” Derek Hansen, Manheim’s vice president of Offsite Solutions, said in a news release. “The success we’ve seen so far this year fuels our desire to continue enhancing the digital experience and building trust with our buyers and sellers.”

Manheim said 45 percent of all sales in the first six months of the year went to digital buyers using Manheim.com, automaker private stores, OVE or Simulcast channels.

OVE had record numbers in March, May and June, and the RMS Automotive private stores reached “several” records.

“Our clients are benefiting from the incredible audience of active buyers and engaged sellers in the Manheim Marketplace,” Zach Hallowell, vice president of Manheim Digital Marketplace and RMS Automotive, said in a news release.

“With significant upgrades to our digital auction technology, intelligent search functionality, Manheim Market Report valuations, OEM build data penetration, and condition reports, dealers have the peace of mind to feel confident in their digital purchases,” he said.