Leasing's revival expected to continue in '10

Leasing has plunged since 2007 but is on the upswing and will continue to rebound this year, analysts and financial institutions predict.

GMAC Financial Services said lease volumes rise and fall depending on how much subvention cash manufacturers are willing to invest in their programs. GMAC "expects leasing may double in 2010 but will not reach levels seen prior to 2008," GMAC said in a statement.

Through February, GMAC supported incentivized lease programs on 14 General Motors Co. and nine Chrysler Group vehicles.

GMAC and other financial institutions halted or pulled back on leasing in late 2008 when they suffered heavy losses associated with a sharp depreciation of resale values for vehicles coming off lease, escalating loan defaults and soaring costs for funds.

GMAC resumed leasing last year.

An industrywide shortage of used cars and trucks is lifting resale values of vehicles coming off lease, making it more attractive for auto companies and financial institutions to get back into leasing.

Consumer response

Jesse Toprak, vice president of industry trends and insights for TrueCar, said companies that pulled back from leasing two years ago are getting back in because consumers respond to it.

He predicts leasing will make up about 18 percent of consumer retail sales this year, up from 17 percent in 2007, 15 percent in 2008 and 14 percent in 2009. "Leasing provides a lot of car for the money," said Toprak, whose online company collects data on vehicle pricing.

Jessica Caldwell, a senior analyst at Edmunds.com who tracks monthly consumer retail leasing data, said leasing could make up 25 percent of retail auto sales some months this year. Leasing made up almost 21 percent of retail auto sales in January 2010 and almost 17 percent in January 2009, according to Edmunds.com data.

Caldwell said leasing generally falls into two categories: the lower-end market, which favors monthly payments up to about $200; and higher-end leases, associated with buyers who want to drive a new luxury vehicle every couple of years.

"The monthly payment is what's important to American consumers, for the most part," Caldwell said.

She said current strong used-vehicle prices -- coupled with the knowledge that the market won't be flooded with used vehicles in the near future because of lower new-car sales and off-lease volumes -- are giving auto and finance companies the confidence to venture back into leasing.

Leasing has increased steadily over the past several months -- excluding July and August, when many vehicle retail sales were tied to the federal government's cash-for-clunkers program, Caldwell said.

Toyota leasing: Consistent

Paul Moss, corporate manager of products and remarketing at Toyota Financial Services, said about 15 to 20 percent of Toyota vehicle retail transactions and 40 to 50 percent of Lexus retail transactions handled annually by the lender are leases.

He said his company never stopped leasing, and those percentages have been fairly consistent over the years. But Toyota Financial is putting more emphasis on leasing this year and expects the number to be up in 2010 -- "not drastically, but up," Moss said.

Leasing offers benefits for all parties, he said. Consumers can get into a vehicle for less money, dealers get the opportunity to move another vehicle to consumers at a predictable interval, and the company benefits from having another way to deliver a vehicle.

Despite the harsh publicity surrounding the temporary suspension of sales of recalled Toyota vehicles and predicted lower values for those vehicles by publishers of respected used-vehicle value guides, Moss said the resale values have not declined.

Jonathan Banks, senior director of NADA Used Car Guide, said his data show that in the week that ended Feb. 21, average wholesale prices of used 2008 Toyota Camrys dropped about 8 percent to $12,800, while resale prices of other vehicles in the Camry's segment performed better.

Toyota Financial said the disparity is a result of an unusually large mix of higher-priced 2008 Camry Hybrids that went through auctions the week that ended Feb. 14.

Ford Motor Credit Co. did not get out of the leasing business but shifted much of its marketing support to retail sales contracts in 2008, said spokeswoman Margaret Mellott.

Since the fourth quarter of 2009, Ford Credit has increased marketing for leasing "somewhat," with that support varying by vehicle and region of the country. "It's really a strategy of wisely targeting market support," Mellott said. She would not say what percentage of retail transactions financed by Ford Credit are through leases.

Favorable forecast
Leasing's U.S. share of retail deliveries is expected to rebound.
2010: 18%*
2009: 14%
2008: 15%
2007: 17%
2006: 15%
Source: TrueCar

You can reach Arlena Sawyers at asawyers@crain.com

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