The popularity of leasing in the mid- to late-1990s has made used vehicles more plentiful.
But record numbers of off-lease vehicles coupled with heavy new-car incentives have depressed used-vehicle prices.
Weak used-vehicle prices mean companies must accept lower values for their off-lease vehicles when they come back into the market.
The Automotive News World Congress featured a panel of remarketing experts who tackled the topic of how to maximize or at least maintain used-vehicle values in an era of heavy new-car incentives.
Here are highlights from each panelist:
Vic Doolan, CEO, Volvo Cars of North America
Domestic manufacturers who largely have turned their backs on leasing may wind up helping residuals in the future but risk losing customer loyalty, Doolan said. Domestics must get back into leasing if they intend to woo buyers out of European brands and into their new vehicles.
The most important cost of a vehicle is resale value. "We need to ensure resale value is great for all of our owners - not just the 40 percent that are leasing," Doolan said.
Import brands engage in incentives, but they do it in a circumspect way. "They do it through leasing; they do it through high residuals and low (finance) rates," Doolan said. "It's difficult to define how much subvention they (import brands) have on a car."
Customer cash is the most destructive incentive on residual values, he added.
Austin Ligon, CEO, CarMax Inc.
The CEO of the nation's largest specialty used-vehicle retailer said the record number of new cars sold in the past few years virtually assures the industry of a plentiful used-car inventory.
Leasing trends change the way vehicles come back into the market - in bell curves or in spikes - not the number of vehicles, Ligon said.
"We don't see the off-lease trend as being neither here nor there," he said. "All it says to us is, 'Here's how the market's evolved, and we have to be in a position to deal with that.' "
Off-lease and retired rental vehicles represent about 20 percent of all used-vehicle inventory. The rest are from consumer trade-ins and purchases.
Said Ligon: "How good are you at getting consumers who come to you to sell their used cars? If you're good at that, you'll have good supply, and if you're not, you won't."
Dean Eisner, CEO, Manheim Auctions Inc.
Creative use of new remarketing technology will help companies maintain used-vehicle values, Eisner said.
New interactive technology that enables online buyers to bid against buyers in the auction lanes expands the number of wholesale buyers and increases prices, he said.
"Expanding the pool of the right potential buyers is critical to achieving true market value," he said.
He added that reconditioning at the wholesale level typically returns $1.50 for every $1 invested.
Raj Sundaram, president, Automotive Lease Guide
The last two years have been brutal for residual values and wholesale used-vehicle prices, Sundaram said.
Despite positive indications from the economy, 2004 will continue to be challenging.
The projected decrease in vehicles coming off-lease in 2004 is a positive but will not have a big effect on used-car prices, he said.
Inflation, which drives up residuals, is expected to be low, he added.
Sid DeBoer, CEO, Lithia Motors
Used cars and trucks are vital to Lithia Motors, DeBoer said.
Used vehicles make up 24 percent of his company's sales and 21 percent of its gross profits. DeBoer said he believes used-vehicle wholesale prices will increase 3 percent to 4 percent this year.