Although this year’s record number of off-lease vehicles is a challenge for manufacturers, there is some good news. Remarketing experts say used-vehicle prices bottomed out last fall and resale values are increasing.
Still, it’s hard to ignore the law of supply and demand: A flood of vehicles in the resale market adversely affects resale values and in turn reduces residual values.
“We lowered residual values by almost 14 percent in 2001 compared with residuals a few years ago,” said Raj Sundaram, president of Automotive Lease Guide, a Santa Barbara, Calif., company that sets lease residual values. “Resale values declined 3.5 to 4 percent in 2001 driven by the flood of vehicles and increased (new-vehicle) incentive spending. We see 2002 as a stable year.”
Don Porter, director of remarketing for DaimlerChrysler Services, in charge of Chrysler group and Mercedes-Benz, expects a record number of off-lease vehicles this year for both companies.
He said the Chrysler group is expecting 360,000 units to come off lease, a 63.6 percent increase over the 229,000 off-lease vehicles it handled last year.
Mercedes, Porter said, expects 55,000 vehicles to come off lease this year, up from 53,000 in 2001 and 43,000 in 2000. BMW of North America Inc. expects more than 60,000, said Bill Bates, BMW used-vehicle marketing manager.
While Jeff Heichel, director of GM Used Vehicle Activities, declined to say how many vehicles GM expects to have come off lease in 2002, the numbers are significant. In May 2001, GM and its captive finance company, General Motors Acceptance Corp., said they send 1 million retired rental cars and off-lease vehicles to auctions annually, and GM said it will double its certified used-vehicle sales to 200,000 in 2002 and to 400,000 in 2003.
“Overall, we’re seeing an uptick in demand for used vehicles,” Heichel said, “and we’re managing the supply side of the equation to maintain the appropriate balance.”