Is Auto Leasing Really Dead?
ALEXANDRIA, VA - The National Vehicle Leasing Association (NVLA) announced its synopsis of the current condition of the auto leasing industry.
According to the experts at the National Vehicle Leasing Association, leasing is not dead. In fact, there is an opportunity to capitalize on the gap in the market that exists now that some major banks and the Big Three auto manufacturers have retreated from leasing.
Headlines in every major publication heralded this news, amongst other dismal economic data. The front page of the Wall Street Journal read “Chrysler Retreats on Leases.” Interestingly, the subheadline said “Move Could Dent Sales Further.” This raises an interesting point, one that the manufacturers are hoping won’t play out the way the NVLA believes it will. This stems from the simple fact that not everyone will want to sign up for a 72-month purchase finance in order to make their monthly payments affordable.
Where does that leave the independent vehicle lessor? Where do opportunities lie? And where are the pitfalls lurking? Residual values and underwriting are the vehicle leasing industry’s Achilles’ heel. Leasing is absolutely not dead. And, now more than ever, there is a growing need for the independent vehicle lessor. Here’s why:
- Foreign captives, banks and credit unions are ready to take up the slack.
- Independent leasing companies can provide financing options to dealers, especially domestic dealers who now really need a viable option for their customers.
- Trade cycles now, more than ever, need to be shortened for dealers to survive, and leasing is the only proven mechanism to achieve this.
- Leasing is inherently good for the consumer, affording them more options and less financial risk than ownership, especially when compared to a long-term finance agreement.
- Who really wants to keep a car for six years? A three-year commitment with an option to purchase is more desirable for most car purchasers.
- Pre-owned leasing, a staple of most independent leasing companies, is set to hit the big leagues, offering lessors better protection with lower residuals and lessees with the lower monthly payments they need.
Without independent vehicle lessors to fill this gap, how will domestic car dealers be affected by the recent moves in the marketplace?
- A lack of leasing options will send some customers to imports.
- Dealers will be forced to extend terms and trade cycles to reach saleable payments.
- Floor plan costs will rise.
- Increased trade cycles will further erode new car sales.
Without independent vehicle lessors, how will consumers be affected?
- Consumers that inevitably want to trade out after the lease will have negative equity.
- Fewer financing options equal less competition and higher costs to the consumer.
With the announced exit of a few major players from the leasing business in the past month, including captives as well as larger bank players such as Wells Fargo and Chase, funding will once again be at the forefront of our business challenges. Tight credit markets will not serve this industry well. However, discipline and sound business practices will allow those employing them to succeed, even in difficult times.
The NVLA has a host of dedicated funders that seek to do business with NVLA members, as these funders know that NVLA membership signifies a commitment to this industry, and to business excellence as a whole.