In addition to cutting residuals, Bill Jensen says prudent lenders need to:
Recognize that many options do not hold value and should not be included in determining residual value - gold trim packages, for example.
Spread the risk by avoiding too big a concentration of makes, models, body styles, or lease durations.
Set aside bigger reserves to pay for future residual losses, or buy insurance.
Shift to long-term leasing to reduce returns, and thus reduce the risk of being burned on residuals. Also, captive finance companies are tough to beat in the short-term market because they offer strong incentives to increase automakers' sales.
Develop stronger credit criteria on long leases, which have lower monthly payments and attract some unqualified applicants.