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Reprinted from AutoRemarketing
Flashback 1992: Used Vehicle Leasing
(Editor's Note: AutoRemarketing.com plans to examine key issues in the used-vehicle industry by revisiting past predictions and news from top remarketers. Here, we examine how used-vehicle leasing has - or hasn't - improved in the last decade.)
Most remarketers think of used-vehicle leasing as an emerging trend, something to latch on to as soon as the engine starts to purr. Most don't want the front-end risk, but they want to see forward progress in their leasing departments.
That statement was as true eight years ago as it was last week.
In 1992, remarketers touted the benefits of used-vehicle leasing but sounded a toll of caution about dealer education and lease strategy. Richard Morgenthaler, who then was vice president of sales and marketing for GE capital Auto Lease, said it was a new venture that worked for some dealers.
"Even though it is new, we are concentrating quite a bit on used-car leasing, and we expect it to grow," Morgenthaler told Auto Remarketing Magazine in 1992. "Any dealer who has looked at it seriously has seen good success with it."
But even then, there were logistical concerns and trouble spots, said Dick Biggs, president of Biggs Automobile Leasing Corp., of Roswell (GA).
"It has to be done right," he said. "Sure, I can go down to the bank and lease a one- or two-year-old car for maybe two years, and that's fine. The problem is when dealers try to get somebody in a five-, six- or seven-year-old car with lots of miles on it and write a three-year lease."
That was before certification took hold on the industry, but lessors and dealers still see problems leasing used vehicles. Earlier this year, Rene Abalah, and analyst for The Campbell Group, told Auto Remarketing Magazine that used-vehicle leasing accounted for only a sliver of sales. In 1999, used leasing amounted to 1.71 percent of total used vehicle sales, up from .11 percent in 1991. But by 2003, its market share will rise to only 2.5 percent, analysts say.
In 1992, used-vehicle leasing was hampered by dealer unfamiliarity and misapplication, and in 2000 unfamiliar dealers remain a major drawback. Subvention has kept new-vehicle prices low, so retail buyers often can lease new vehicles for lower rates than used vehicles. If you can lease a new vehicle, why lease a used vehicle for the same price? Abdalah asked.
But the steady problem remains awareness as too few consumers know they have the option of leasing used vehicles, Abdalah added. The key is to boost dealer awareness so dealers can educate their buyers, he said.
Several other factors keep used leasing down, including subvention, high residual values and captive finance companies' rising share of the leasing market. Major banks like Chase Manhattan and Banc One Credit Company are losing market share to captives, putting leasing more in the hands of automakers.
As used-vehicle quality rises and leasing steps out of the shadow of recent losses on residual values, used leasing might finally catch fire. But that day is not today, says Jim Calvert, president of EndTrust Lease End Services. "The potential is tremendous," he said. "But there are a lot of variables out there, and right now, they all point toward new cars."
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