RVI Group predicts leasing penetration will surpass current levels to reach new record highs, and thus further depreciate used-car values, said Senior Vice President Rene Abdalah.
The growth in leasing will be spurred by rising interest rates — which have tracked with rising levels of lease penetration in the past — as well as production and incentive increases from manufacturers, he said.
“I’m not going to sit on the sidelines and expect OEMs to finally do what they said they were going to do, which is manage inventory and production,” Abdalah said during a panel at the Auto Finance Risk & Compliance Summit last month. “It hasn’t shown to date, and we’ve seen really big increases in incentive activity over the past two years. So, we’re not going to bet on the manufacturers to cut back.”
Incentives increased 18% in 2016 compared with the previous year — which marks the second consecutive double digit year-over-year increase, panelists noted.
However, there could be an inflection point where subventing leases no longer makes financial sense for OEMs, and residual value risks become too high, which will lead to pullbacks, said Eric Ibara, director of residual value at Kelley Blue Book.
“I expect a lower lease penetration, because the cost of subventing leases is very high — it’s higher than for loans or cash,” he said. “There is a point where the losses are just so great that manufacturers and captives have to pull back on leasing.”
