The used-car glut and the spate of incentives on 2003-model units are heightening the uncertainties of market forecasting and complicating the future of leasing.
That adds up to increased problems for F&I managers trying to figure out whether a 0% loan or a harder-to-come-by lease is a better deal for the customer.
“We like price increases but not incentives,” says Raj Sundaram, president of Automotive Lease Guide (ALG). “Price increases mean stability in resale values down the road. Incentives could mean instability.”
For the F&I manager, the task of finding reasonable payments for a customer has become more complicated by the ongoing glut of pre-owned vehicles finding their way onto dealership lots.
“Often, with leasing scaled back on new cars, a late-model trade-in or off-lease unit is the only way we can keep a customer's payments affordable and sell insurance products as well,” says Kevin Murphy, subprime manager for Earnhardt dealerships in metro Phoenix.
A record 43.5 million used vehicles will be sold this year in the U.S., about 16 million by franchised dealers. The bulging lease rates of 1998 and 1999, when residuals were optimistically inflated and customer monthly payments were held to low levels, helped swell the used-unit torrent of this year. Sundaram says it will remain high until mid-2003 at least.
Leasing is accounting for a peak 4 million end-of-contract units this year and an estimated 3.5 million in 2003.