The used-vehicle inventory drought is almost over.
This year, according to Manheim projections, about 2.1 million off-lease vehicles will return to the market, up from 1.7 million in 2013. Manheim also predicts that number will grow to 2.5 million in 2015.
In 2016, and for several years thereafter, the number will exceed 3 million, Manheim predicts.
That's good news for dealers who are struggling to find reasonably priced late-model used cars and trucks -- the fallout of three years of slumping new-vehicle sales and a lease market that all but dried up in 2009.
But it will mean a double whammy for new-car buyers. Greater supply will mean lower prices for used vehicles, thus reducing the trade-in value of a shopper's current vehicle.
In addition, those lower prices could wallop lease terms. Typically, monthly lease payments are lower than monthly loan payments for the same vehicle because the financing institution doesn't charge for the vehicle's residual value -- the amount it will be worth at the end of the lease. Falling used-vehicle prices will bring falling residual prices, with the consumer having to pay more to make up the difference. Automakers increasingly have relied on leasing to offset higher sticker prices, but that may not be as effective starting in 2016.
Add in a rise in interest rates, which many economists predict will begin in the second half of 2015, and 2016 could bring even more financial pain for buyers.
A study conducted by ALG Inc. that analyzed interest rates from roughly 1982 to 2012 estimates that every 1 percent increase in interest rates -- all else equal -- would reduce current new-car sales by about 300,000 units. ALG sets residual values for the industry.
Automakers say they are getting ready.
"There is a tsunami of lease returns coming to us, and we have to be really, really well prepared for them," Fred Diaz, Nissan North America senior vice president for U.S. sales, marketing, parts and service, told Automotive News. He would not say how many vehicles he expects to come off lease this year.
"We're in the process of fine-tuning and putting the final touches on what that strategy will be with our dealer advisory board."