With more than 40 new-car models available for lease for $200 or less per month, according to Edmunds.com, leasing is definitely making a comeback.
Vehicles in the average American’s fleet are aging, and a low-payment lease option is tempting. If the choice is a $200-a-month payment for 48 months on a used car or the same monthly payment for a 24-month lease on a new car, I’m guessing the lease option would win much of the time.
And for OEMs, getting consumers back on a 24-month trade-in cycle is ideal. Or is it? While used vehicles are currently in short supply, a couple years of high lease volume might overcompensate.
Not only that, but I wonder if lessors have forgotten their mantras of 2009, when they vowed conservative leases on only select products. Are we headed down a dangerous path?
My personal opinion is that the pre-owned market would welcome a flood of premium vehicles, but it IS all about balance. I could even see the OEMs stepping up daily rental renewals for a while.
BUT the talk from GM Financial (AmeriCredit) in their booth at NADA was all about buying deep and enhancing residuals. I wonder if Leo Burns knows about this. If not, it is another example of one hand not knowing what the other is doing.
Please say it ain’t so Joe.
@ Steve – At GM Financial, they ARE all new people. It’s strange to see GM Financial competing with ALLY. But Leo is the Manager of Residual Management at GM. I hope he weighs in!
If anyone knows of anyone insuring residuals other than RVI I’d like to know about them.
I would also like to know who is insuring residuals. RVI’s product offering is not what you might expect.
ALG is particularly weak on heavies. RVI insures residuals based on KBB. They have a different view on residuals. In the RVI/KBB world, a gradual increase in fuel prices isn’t as devastating as a sudden spike. A spike is always followed by a glut. In the face of moderate fuel prices OEMs still have to meet CAFE or face huge fines. Consequently KBB/RVI expects there to be aggressive incentives to move smaller more fuel efficient vehicles to balance out the OEM’s CAFE in the face of moderate fuels prices. A 6 month fuel spike seems like an eternity. And the impact lingers in people’s minds after.
Bottom line – there might be some “room” to enhance residuals somewhat with lenders insured by RVI. Currently, heavies returning off lease are making money. Lessors aren’t seeing much of it as lessees and dealers, as usual, are picking of the “cherries” before they get back to the lessor. But at least I’m not hearing about significant losses.
Any thoughts?
Also, I had a long chat with Leo Burns, GM’s manager of residual values on Friday. I made the comment that the current CTS lease is in “Malibu territory.” He tells me GM is fully aware of the CTS lease and it won’t be around much longer. Despite occasional short term “blips” I think Leo is really on top of things. His team is scrutinizing everything and they have a “big stick.” It remains to be seen what happens at Ford and Chrysler.
Regarding my previous comments about small vehicles versus “heavies.” Historically, we haven’t seen a lot of lease activity in smaller more fuel efficient vehicles compared to the more expensive rides. Once you drop below Camry, Fusion, Accord, etc. I don’t think there is much going on. At least that is what I’ve seen in the past. is anyone seeing a different trend in the current flurry of leasing activity?
The fact that the CTS lease offer was comparable to a Malibu in the first place is a warning sign. I respect Leo’s position, but these programs create a drag on the future value of the product and also drag down the whole segment. GM wants to sell cars and if the inventory is piling up, they will act to move it as I would suggest happened with the CTS. As a lender, any program that returns us to the days of someone being able to drive a $40,000 car for less than $400 a month, concretes our absence from the auto lease space. Many of us are still dealing with Volvos that hit the road in this manner when ALG refused to address it real time.
On a side note, the “Camry line” you describe above is real and in my experience there is a lot of resilience in these vehicle types. I would like to lease cars like Camrys and Fusions all day long. Even with heavy sales volume and Toyota’s victimization by the media, the Camry has held its value. There are always captive programs to lease these cars, normally they are pretty sane. Until the Camry becomes an aspirational model like a BMW, you won’t see a large migration for them into leasing. Camry buyers know their car will last so they select a loan and keep the car full term or beyond. That will not change anytime soon.