As we move toward the end of the first quarter of 2017, we continue to see a SAAR pressing more than 17 million units. The OEMs are geared to produce the volumes, the incentives continue to maintain sales momentum and leasing makes up about 30 percent of all retail transactions across the U.S.
While the OEMs have curtailed their fleet sales, they and their respective captives have seen their leasing portfolios grow significantly. The consumer has been able to leverage more vehicle as the “logic” of leasing plays well to the consumer who chooses to minimize capital placed into a depreciating asset. The OEM and their captives have used leasing as a subtle approach to incentives — delaying the impact on vehicle residuals until the lease comes to maturity.
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In a relatively strong market with a “flattening” sales rate, along with increased incentives from the brands, it is a good time to review how these factors may impact your dealership.
The 4 Million-Unit Question
The concern with increased levels of vehicles being remarketed is that residual values will compress. This requires increased remarketing efforts at the retail level, a primary force behind many dealer groups investing in separate, branded used retail facilities.
While annual vehicle lease maturities grew from more than 2 to 3 million units between 2015 and 2016, analysts’ models for 2017–2018 indicate a growth to more than 4 million units. The emergence of used vehicle leasing will provide an opportunity to balance some of this flow. This will apply to brands maintaining strong residuals and market demand.
How Can the Dealer be Prepared?
It is critical that dealers obtain and analyze details of their lease portfolio. This should be assigned to a senior GM or GSM to capture and evaluate. This is data that should be available from your DMS, or your OEM CPO programs and captives. I recommend that you pull both internal (DMS) and external (finance company) records to compare — you may be surprised at what you’ll find.
This analysis will allow you to identity vehicles you will be “obligated” to remarket, often based on your brand CPO sales objectives. You should carefully look at how your future “used fleet” is performing in your market area. Are residuals in line or way outside of market actual? What are my available CPO incentives? Which vehicles are likely to be good used leasing targets? Do I have the tools and skills to lease used vehicles?
While you are at it, spend some time on reviewing the strength of your used operations, including vehicle acquisition, reconditioning, marketing and disposal. The data gathered in review of your portfolio will provide needed input for you to focus your processes and staff to become part of the remarketing effort required for the industry to process these units coming back for both near and long term.