JESSE SNYDER

Automaker discipline is holding … so far

Jesse Snyder is senior writer for Automotive News.Jesse Snyder is senior writer for Automotive News.
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Four years into the sales recovery, we’re all holding our breath.

We all hope everybody remembers the hard lessons of the Great Recession. And fear somebody will crack open a fresh can of marketing excess -- especially we graybeards who remember previous boom-and-bust cycles.

So we cringe at every low-ball lease deal. Every four-digit wad of cash on the hood. Every ridiculously high residual value a lender uses to juice monthly lease payments.

It’s especially true this time. Because plummeting off the 1999-2007 auto sales plateau into the abyss of 2009 hurt so much. Because the industry’s production/sales/incentive discipline -- and profit -- of the climb back feels so good. And because nobody wants to return to the bad old days of the mid-2000s: sky-high spiffs chasing chronic overproduction.

After the vicious hangovers when returning leases weren’t worth the residuals automakers had banked on, the industry has welcomed sobriety.

Per-vehicle spiffs have hovered around all-time lows for a couple of years. As a result, transaction prices keep setting records.

Oh, make no mistake, everybody still fights for market share. It’s just that nobody is buying it, at least not enough to trigger a profit-shredding marketing shootout.

Or will the current Toyota effort to regain subcompact sales supremacy with cheap leases by jacking the redesigned 2014 Corolla’s residual value way above historic norms scuttle all that?

I don’t think so. There is a difference this time. Yes, manufacturers have rediscovered leases and leasing penetration is back to almost a quarter of all U.S. volume after slipping to around 10 percent in the recession.

But I don’t see automakers building a new bubble yet. And because interest rates are so low, subsidizing lease deals is a really cheap and effective incentive.

Larry Dominique, president of ALG Inc., agrees. “Manufacturers and lenders are subventing leases, but they are setting up reserves to cover the losses when these vehicles come off lease,” he said today. “So it’s a rational business decision.”

And therefore not a return to the excesses of the past decade, by Dominique’s reasoning.

I confess. I have a dim view of credit cycles. Every expansion starts with marketing discipline. Almost by definition, every down cycle follows a climactic spree of loose money and poor lending decisions -- too much capital chasing too few good opportunities.

But right now, the discipline is holding. Game on.

You can reach Jesse Snyder at jsnyder@crain.com.

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