Industry must steer clear of the off-lease trap GM's wise move
The number of vehicles coming off lease is rising and will grow even more in 2014. The flow slowed to a trickle during the recession as new-vehicle sales plunged and credit for leasing dried up.
But leasing started to perk up three years ago, fueled by low interest rates, easy credit and rising residual values, enabling automakers to offer lower monthly payments while preserving profits.
The leasing rebound means more off-lease customers are starting to return to the market.
Those off-lease customers have been the last missing element of a normal auto marketplace. Automakers are licking their chops at the prospect of retaining their returning customers and perhaps poaching somebody else's.
It's a heady opportunity. And a potential trap.
Automakers, sobered by hard times, have successfully maintained market discipline since 2009: matching production to demand, keeping their inventories low and incentives carefully targeted.
Suddenly, retaining or capturing off-lease customers is a fresh challenge to that discipline. Offering early buyouts to keep leasing customers or to capture a rival's can escalate into a major expense as off-lease volume rises.
It would be a shame if restoring the final piece of a normal auto marketplace upset years of good business practices.
We urge automakers and dealers to balance innovation in their pursuit of off-lease customers with discipline and thoughtful risk management.