For the first time since 1999, resale values of 3-year-old vehicles coming off lease are beating expectations - a swing that will save automakers money and possibly lead to more leasing.
The trend is not expected to last for more than a couple of years. But for now, higher-than-anticipated residual values mean manufacturers won't lose as much money when they resell off-lease vehicles. The higher values also encourage automakers to offer lower monthly lease payments on new vehicles.
Still, no one is counting on a return to the climate of the late 1990s, the golden era of leasing.
Automotive Lease Guide of Santa Barbara, Calif., has revised its residual value projection for 2002-model vehicles coming off lease this year. Those vehicles are expected to retain 45.9 percent of their sticker prices. That is 2.4 percentage points higher than Automotive Lease Guide projected when the vehicles were new.
The revised forecast looks good for next year, too. Three-year-old 2003-model vehicles are expected to retain 45.1 percent of their sticker prices at lease end in 2006. That is 3.1 percentage points ahead of the 2003 projection.
"It's going to be a pretty good year (for residual values)," says Raj Sundaram, president of Automotive Lease Guide. "This year is the beginning, and next year will be better."
The company publishes the industry's bible on residual values. Many lenders base their monthly lease payments on its estimates.
The higher projections are based on several factors. Sundaram says a reduced supply of off-lease vehicles, rising interest rates and more efficient methods of remarketing used vehicles at the wholesale and retail levels have helped strengthen used-vehicle prices.