Big retailers see carmakers controlling leases, stocks
AutoNation's Jackson: No out-of-line inventories
Four major public dealership groups expect automakers to boost leasing offers and vehicle inventories this year.
But the dealership executives say automakers are likely to remain disciplined in both areas. That means no big cash incentives on the leases, and no flood of vehicles that requires big discounts to sell.
"Manufacturers are much more rational now," AutoNation CEO Mike Jackson said in an interview. "I don't expect inventories to be out of line."
Jackson said he expects mainstream import brands to increase lease offers more than domestic brands.
"The normal leasing rates for retail are somewhere around 20 percent and I don't expect to see a significant incentive program that will distort that number," Jackson said .
He said that past lease-penetration levels of 30 to 35 percent were "inappropriate and unsustainable."
"I don't see that happening again," Jackson said .
AutoNation, of Fort Lauderdale, Fla., is the nation's largest dealership group. It posted retail sales of 222,679 new vehicles in 2011, up 7 percent from 207,180 vehicles in 2010.
Asbury's Kearney: More lease finance incentives
Because used-vehicle prices remain strong and interest rates low, offering more leases makes sense, says Jonathan Banks, executive auto analyst for the National Automobile Dealers Association.
Banks says the mainstream automakers likely will offer more leases than the luxury brands because the mainstream brands had pulled back so much during the recession.
"You need those 3-year-old vehicles for certified pre-owned, and certified pre-owned demand has been really strong," Banks says. "Manufacturers will want that 3-year turn."
Asbury Automotive Group Inc. executives say that as long as the financial world is stable, manufacturers will push more leasing. But they will offer financing incentives instead of cash incentives.
Low finance rates "are a way for them to incentivize a particular model without it being damaging to the brand in the wholesale three years from now," Asbury COO Michael Kearney says.
Kearney says Honda, Toyota and Chevrolet are expanding lease offers.
Asbury, of suburban Atlanta, ranks No. 6 on the Automotive News list of the top 125 dealership groups in the United States with retail sales of 67,232 new vehicles in 2010. Asbury has 79 dealerships in 18 U.S. markets.
Group 1 Automotive Inc. had a successful fourth quarter with leasing, says Pete DeLongchamps, vice president of manufacturer relations.
"When you look at our lease percentage over the last few years, this year far exceeds what it was," DeLongchamps says. "It got down to high single digits during the darkest days when a lot of companies got out of leasing completely. It could be two or three times that."
Group 1, of Houston, ranks No. 4 on the Automotive News list of the top 125 dealership groups in the United States with retail sales of 97,511 new vehicles in 2010.
But DeLongchamps echoes the recently publicized concerns of his boss, Earl Hesterberg, that automakers must keep inventory in line with demand so they don't flood the market, pressure pricing and erode dealer profits.
"When you take a look at where dealer margins are today across the board, being sure that the manufacturers keep a steady supply, but not become incentive-laden" is key, DeLongchamps says.
At the nation's second-largest dealership group, Penske Automotive Group Inc., inventory is good, but Honda and Toyota are still refilling the pipeline after the earthquake and tsunami last March in Japan disrupted vehicle supply for several months.
"It's not the level it once was, but it is recovering," says Robert Kurnick, president of Penske.
Penske retailed 155,352 new vehicles in 2010.
The dealership group executives agree that as the Asian automakers struggle to recapture lost market share caused at least in part by inventory shortages last year, there is a risk that those automakers might flood the market. While the dealership group executives believe it's unlikely, they stop short of predicting the future.
"We anticipate no shortages really of any kind of product as we go into the first quarter of 2012," Asbury CEO Craig Monaghan says. "We can't predict after that, but the tsunami was only the 11th of March last year, so I don't predict any further out than 90 days down the road."
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