Leasing

August lease-transfer approvals nearly reach ‘healthy’ status

CINCINNATI - 

Lease transfer approvals in August nearly hit what Swapalease.com classifies as “healthy.”

The site reported on Wednesday that vehicle lease transfer credit applicants registered a 68.3 percent approval rate for August, just shy of that “healthy” mark that Swapalease.com pegs at 70 percent.

Analysts pointed out the credit approval rate for August saw a noticeable improvement from the previous month’s rate of just 54.3 percent. In more complete context, a year ago the approvals rate was much lower, reaching only 57.7 percent at this time last year.

Swapalease.com also mentioned the jump in approvals more than likely came before Hurricane Harvey affected Texas and surrounding regions. This increase in lease credit approvals is likely due to a rise in consumer confidence, which has remained strong in the current economy.

The consumer sentiment index rose to its highest level since January during August, according to the Consumer Confidence Survey.

“A boost in consumer confidence can have a positive impact on the automotive industry,” said Scot Hall, executive vice president of Swapalease.com. “August’s numbers are hopefully the beginning of an upward trend in the amount of lease credit approvals we will see for the rest of 2017.”

As an increasing number of Texas residents in particular look to replace their damaged or destroyed vehicles, Swapalease.com added that it will keep its eye on lease transfer activity in and around the surrounding region.



Just 3 brands see lift in Q2 lease-transfer traffic

CINCINNATI - 

When it comes to consumers taking over someone's vehicle lease contract, they appear to be pretty particular about which brands they are considering.

According to its quarterly lease trends report for the second quarter released on Tuesday, Swapalease.com discovered only three badges increased in search traffic from the first quarter. That group included Infiniti, Ram and Chrysler, which saw a rise in search traffic by 10 percent, 5 percent and 3 percent, respectively.

Among domestic brands, the report showed GMC saw the largest decrease in the quarter for search traffic. The brand saw its level soften by 12 percent. A year ago, Swapalease.com pointed out that GMC’s brand searches were up by 14 percent, showing that consumers may be turning their attention elsewhere for leases.

For European brands, the report indicated Volkswagen saw the biggest dip in search traffic, decreasing by 11 percent compared with the first quarter. Not a single brand in the European category increased in search traffic this quarter.

Within the Asian brand category, the report noted Acura performed the worst, decreasing in traffic by 11 percent.

Infiniti claimed its position as the largest share of overall traffic (10 percent). A year ago, it was Ram that boasted the most search traffic out of all categories.

Swapalease.com determined the average monthly payment on a lease in Q2 came in at $474.39, which is a slight change from Q1 when the average payment was $436.35.

BMW is currently the most expensive brand to lease with an average monthly payment of $862. Conversely, Volkswagen is the most inexpensive brand to lease with an average monthly payment of $318.

The report also mentioned that higher-priced leases — monthly payments above $500 — saw increases in the second quarter compared with the first, possibly indicating continued strength in the economy.

“Our second quarter lease trends report shows that leasing remains strong in the automotive marketplace today, with increases in value of payment and number of leases in the driveways,” said Scot Hall, executive vice president of Swapalease.com.

“We’re also seeing growth in SUVs, crossovers and sports cars interest, which mirrors much of what is taking place in the broader automotive market today,” Hall added.

The complete Q2 report .



College students impact July’s lease transfer approvals

CINCINNATI - 

Back to school means once again the approval rate for lease transfer applications is headed back down. 

Swapalease.com reported vehicle lease credit applicants registered just a 54.3 percent approval rate for July, explaining the decline both on a sequential and year-over-year basis stemmed from in part because of college students leveraging the site in hopes of landing a better vehicle to drive to campus.

Site officials indicted July’s credit approval showed a decrease from the previous month (68.8 percent) as well as a year ago (57.7 percent). Overall, Swapalease.com pointed out that this year’s credit approval numbers have been somewhat lower than in years past.

Executive vice president Scot Hall explained this dip in lease credit approvals continues to be attributed to several factors that include a higher volume of lease applicants with less-than-stellar credit worthiness, as well as a higher number of applicants looking for vehicles in higher-priced categories.

Hall added that during this time of year, Swapalease.com typically sees a dip in the approval ratings because students with lower credit scores are looking for vehicle leases entering the new college school year.

“Both the state of the economy and the increased number of applicants indicate that more consumers are ready to lease vehicles,” Hall said. “Unfortunately, their credit doesn’t always reflect that readiness.

“As the economy continues to improve, giving more people the incentive to lease vehicles out of their reach, we expect to the number of declines to be higher than normal,” he went on to say.



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6 badges could see boost via LegalShield purchase or lease offer

ADA, Okla. - 

Dealers could benefit from a new program to help them turn their new models from Jeep, Hyundai, Ram, Dodge, Fiat and Chrysler.

LegalShield, a consumer membership company that allows subscribers to connect with law firms for personal legal advice or assistance, formed a partnership on Monday with BonusDrive, a firm that can deliver benefit programs on behalf of insurance companies, employers, associations, credit unions, co-ops and other organizations.

The companies rolled out a program that offers a $500 rebate to members who buy or lease new Jeep, Hyundai, Ram, Dodge, Fiat and Chrysler vehicles. The partnership was unveiled by LegalShield chief executive officer Jeff Bell and BonusDrive co-chief executive officer Jim Evans.

“We always are attempting to enhance the benefits for our members,” Bell said. “For our members of LegalShield, the BonusDrive program is another easy way to bring them value at every turn.”

According to Evans, BonusDrive is unlike other offers from manufacturers and dealers, since it can be combined with applicable discounts, rebates, incentives and promotions LegalShield members already have negotiated.

Evans also noted that the rebate process is designed to be simple. After the LegalShield member makes the deal with a Jeep, Hyundai, Ram, Dodge, Fiat or Chrysler dealer, and the purchase or lease is complete, the member will need to fill out the quick BonusDrive application online within 60 days.

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LegalShield members can call (888) 982-6687), email [email protected] or visit for program and application details.



Lease-transfer approvals rebound in June

CINCINNATI - 

Swapalease.com reported that applicants through its website registered a 68.8 percent approval rate during June, a significant rebound from May when only 48.1 percent were approved.

Officials explained the company saw less of an influx of shoppers applying for higher-end luxury leases, which often drives up non-approval rates.

Through the first six months of the year, 62.4 percent of transfer applicants have been approved, compared to 67.4 percent the same time a year ago. Swapalease.com noticed a higher number of lease applicants registered for leases with monthly payments between $400 to $599 monthly; which is a “healthier sweet spot” for applicants finding approvals based on credit qualifications.

Swapalease.com officials also say many vehicles in this price range continue to be in the luxury and entry-luxury categories, such as BMW 3-Series, Audi A4/A6 and Mercedes-Benz C-Class type vehicles. There is often a higher number of vehicles in this class, and a higher percentage of applicants find approvals from the lease company.

What’s more, smaller SUVs and crossovers continue to grow in volume in the marketplace, and even these vehicles come at a monthly price point that’s typically more prone to an applicant finding an approval.

“As our lease credit approvals have continued to experience volatility from month to month, we’re beginning to have a better understanding as to why,” said Scot Hall, executive vice president of Swapalease.com.

“We have a greater diverse set of cars and trucks in our marketplace today compared with five or ten years ago, and this means that we are experiencing more volatility in approvals from month to month depending on the volume and deals offered by certain tiers of vehicles,” Hall added.



Leasing declines, but still impacts used-car market

CARY, N.C. - 

Lease penetration is down for the first time since 2012, and the decline in leases written is twice as high as the drop in overall new-car sales, according to latest Lease Market Report from Edmunds.

That said, leasing remains close to record highs, and the swell of off-lease volumes hitting the used-car market should continue for some time.

Lease penetration in the first half of the year was at 31.1 percent. A year ago, it was a record 31.9 percent, Edmunds said.

According to a chart in the report, the last time there was a decline in lease penetration during the first half of the year was 2012, when it dipped from 22.6 percent to 21.4 percent.

Rates then climbed for four straight years.

There were 2.1 million vehicle leases in the first six months of 2017, down 4.4 percent year-over-year. That dip is twice as high as the overall decline in new-car sales, which was at 2.2 percent, Edmunds said.

“Leasing remains a popular choice among car shoppers, but the era of steady growth is over,” Edmunds executive director of industry analysis Jessica Caldwell said in a news release.

“This year we’re seeing a drop-off in trade-ins going toward leases, signaling that the pool of people opting to lease is shrinking,” she said. “Automakers are becoming more reliant on buyers already in the leasing cycle and first-time car buyers.”

However, Edmunds is still expecting 4.3 million leases this year, which would be the second-highest total (next to last year’s 4.5 million leases) in the report’s 11-year data set.

“We may be hitting a ceiling on leasing, but automakers will continue to keep ing the machine because it’s a selling tool that’s too valuable to neglect,” Caldwell said. “Leasing remains an incredibly popular way for consumers to afford the cars they want, so automakers are digging deeper to offer the eye-catching payments consumers have come to expect.”

And counting 2017, annual lease volumes have been above 3 million for five straight years. Though the total volume is likely to dip this year, there has been an increase in annual lease volumes every year since 2009, according to Edmunds.

Based on the numbers the company provides, there were 14.3 million vehicles leased between 2014 and the first half of this year.

That certainly has had and will likely continue to have a dramatic impact on the amount of late-model used-car supply reaching the market.

Cox Automotive predicts there will be 3.6 million lease returns this year, with 4.6 million set for 2020.

A year ago, there were 3.0 million.

And all of this can impact prices on those late-model used cars.

The value of a 3-year-old vehicle in the first half of 2017 was down an average of 35.6 percent from its original value, Edmunds said. In 2014, depreciation was just 31.8 percent for 3-year-old cars.

“This increase in depreciation indicates leasing is becoming a more expensive endeavor for automakers. In order to offer consumers low monthly lease payments, automakers must increase their incentive spend to offset the drop-off in used values,” the Edmunds report said.

Average lease incentives were at $4,400 in the first half of the year, compared to $3,700 in the same period of 2016. This year’s figure is also the highest in Edmunds' 8-year data set of first-half lease incentive spending.

Ironically, Edmunds said the increased incentives don’t necessarily result in a better deal for the lessee: “Instead, the outlay is merely mitigating the predicted decline of a vehicle’s future value.”



39 models maintain monthly lease offer

CINCINNATI - 

As lease offers abound, monthly payments on 39 vehicles maintained their current price points, according to analysis shared by Wantalease.com on Tuesday.

Site officials added there are 15 models being offered for $200 per month or less and three vehicles currently available for lease at less than $150 per month.

Those units with the least expense monthly lease payment include the Nissan Sentra SV, Volkswagen Jetta S and Nissan Altima 2.5 S, Wantalease.com found. The Nissan Sentra SV and the Volkswagen Jetta S are both currently priced at $109 per month, making them the most affordable vehicles for the month.

Site officials pointed out the Nissan Sentra SV has remained at the same price for three months but the Volkswagen Jetta S decreased in price by 29.4 percent since last month.

Only one luxury vehicle is currently offered at less than $350 monthly: The Infiniti Q50 2.0T Premium for $329 per month. With its price tag stable, site officials added that this vehicle has not fluctuated in price for the past three months.

“Good deals on popular leased cars are remaining steady as summer continues,” said Scot Hall, executive vice president of Wantalease.com. “As dealers continue to try to find ways to attract more lease shoppers, we expect these prices to remain stable in the coming months.”

The Ford Fusion SE FWD also saw significant price declines from the previous month. The Ford Fusion SE FWD dropped 16.7 percent with a monthly payment of just $169 per month.

On the other hand, the Chevrolet Silverado 1500 4WD saw the largest increase in price from June to July, with its monthly lease offer rising 33.33 percent. The model is currently offered at $339 monthly.



Consulting firm discusses ‘used-car time bomb’

DETROIT - 

The newest report from AlixPartners — whose client roster includes corporate boards and management, law firms, investment banks and other kinds of investors — cautioned the industry that a “used-car time bomb” is about to explode.

AlixPartners explained that it arrived at that dire assertion through a project that began two years ago through what the firm identified as the “CASE” trends that are “completely revolutionizing” the automotive industry — the connected, autonomous, shared and electric vehicles of the not-too-distant future.

AlixPartners released this analysis detailing how automakers, suppliers and other industry players need to evolve their organizations and their partnering approaches to successfully transition to a “new automotive ecosystem.” 

Using several examples, the firm detailed where companies, often relying on traditional auto-industry approaches, are falling behind and why they should consider revamping their operating models. 

The report projected a significant downturn in U.S. new-vehicle sales ahead, to 16.9 million light-vehicle units this year and to a cyclical trough of 15.2 million units in 2019 — partly driven by a “used-car time bomb” of 500,000 more off-lease vehicle-returns in 2017 versus 2016, on top of the 500,000 more units in 2016 versus 2015.

The reports noted these trends will likely be a “double-whammy” to new-vehicle sales, displacing turns to cheaper used vehicles while increasing lease payments on new vehicles as leases get written with anticipated higher residual rates and tighter credit standards.

While dealerships might be turn more used vehicles, AlixPartners also mentioned that as more off-lease vehicles fill the wholesale market, firm analysts are projecting that used-vehicle prices will soften at a rate double the 13-percent drop they believe already has happened since 2014, costing captive finance companies up to $5 billion. 

Beyond just the growth in off-lease volume, AlixPartners spent much effort on looking at how vehicle technology is going to impact which models might roll over the curb more quickly and which ones might need a spiff to get delivered.

On the connectivity front, the AlixPartners analysis pointed to the example of Tesla’s “high-spec” center-stack display, featuring over-the-air upgrades from the company and iPad-like features. Though this feature has been on the market since the 2012 model year, and has garnered strong reviews from consumers, AlixPartners noted that no other major automaker has moved to match the system.

On the autonomous-vehicle front, the AlixPartners analysis found there are now more than 50 major companies now working on autonomous vehicles or full autonomous-vehicle systems, as well as a plethora of smaller companies and start-ups. This “Wild-West” environment will likely result in a handful of big winners, according to the study, but on the other hand, also many disappointed investors. 

The report also mentioned that many of the newer high-tech entrants have completely different “DNAs” than traditional automotive companies, including being used to high returns on capital. Given the “white-hot” competition brewing, the analysis predicts that AV systems-costs could drop 78 percent by 2025. 

On the shared-mobility front, the analysis included a survey of a total of 2,000 U.S. adult consumers that showed just how fast things are changing in today’s automotive world.

The survey polled 1,000 consumers across 10 large markets where both car-sharing and ride-sharing are popular (the metro areas of Austin, Texas, Boston, Chicago, Los Angeles, Miami, New York, Portland, Ore., Seattle, San Francisco, Oakland, Calif., and Washington, D.C.) and, as a control group, 1,000 respondents across the entire U.S. This effort mirrored a consumer survey by AlixPartners in November 2013.

In this year’s survey, consumers in the 10 trend-setting markets said their awareness for virtually all major car-sharing brands (names such as Zipcar, Car2Go and Enterprise CarShare) has decreased, and 21 percent of respondents were unable to name any brands at all. 

By contrast, this year’s survey also asked users of ride-sharing (brands like Uber and Lyft) in those same 10 markets about their intended usage in the next 12 months versus their past usage, and 24 percent said their usage would be more than in the past, versus just 5 percent who said less — an 18-percentage-point difference.

Meanwhile, AlixPartners said just 17 percent of car-sharing users surveyed in those markets said they would employ car-sharing more in the coming 12 months than in the past — versus 16 percent who said they would use that mobility service less in the year ahead.

Moreover, among respondents in the 10 markets, the survey found that ride-sharing was five times more likely to be a top-three transportation mode than was car-sharing (11.6 percent versus 2.5 percent), and three times more likely than traditional taxis (11.6 percent versus 4.2 percent).

In addition, among millennials surveyed in the key markets, 9 percent said ride-sharing has allowed them to postpone or avoid getting a driver’s license — what AlixPartners contends is another indicator of today’s fast-changing times.

Another key finding of the survey, coupled with AlixPartners analysis, is that in the 10 key markets each vehicle used in car-sharing is likely replacing the need for 19 personal vehicles — a decrease from 32 vehicles based on the results from AlixPartners’ 2013 survey.

Meanwhile, according to the same analysis, one vehicle used in ride-sharing is likely displacing four personal vehicles. The report went on to note that both ride- and car-sharing vehicles are typically replacing vehicles driven less than 5,000 miles per year, not typical commuting vehicles.

On the electrification front, the AlixPartners study reveals that China is investing heavily to take a leadership role in electric vehicles. In an example of that, the report noted that Chinese automakers commanded 96 percent of the 2016 market in China for full electric vehicles (not including hybrids), more than double their share (43 percent) for all types of light vehicles. It also finds that of the 103 EVs to be launched globally by 2020, 49 of them will come from China-based automakers.

The report additionally predicts that China is targeting to have two-thirds of the world’s manufacturing capacity for lithium-ion batteries by 2021 (175 GWh of power, or the equivalent of five Tesla “giga-factories”).

Meanwhile, the report recapped that hybrid sales in the U.S. have slowed, from 3.2 percent of the market in 2013 to just 2.1 percent so far in 2017, while plug-in and battery-electrics sales, while increasing, still represent only 1.0 percent of the market. This, says the study, underscores the need for maximum flexibility in both organizations and partnerships to handle the expected, but bumpy, shift to the new automotive ecosystem that’s coming.

Finally, and also in a way on the partnership front, the AlixPartners study determined that private-equity firms have switched, in droves, from being buyers to sellers — most often to “strategics” (companies in the auto industry already), as private-equity-to-strategics deals skyrocketed from 6 percent of total auto-M&A transaction values in 2013 to 84 percent in 2016.

John Hoffecker, global vice chairman at AlixPartners and a 30-year automotive veteran, said, “There’s an all-new automotive ecosystem developing, and I fear that many players really aren’t prepared for it. The changes coming are the biggest since the internal-combustion engine pushed aside horses and buggies, yet what the exact changes will be are as unpredictable as trying to guess which app is going to be most popular on next year’s smartphones.

“Leading players will be those that both study hard and are fast on their feet,” Hoffecker continued.

Mark Wakefield, global co-head of the automotive and industrial practice at AlixPartners, added, ”With the rapid but uncertain developments in connectivity, autonomy, shared mobility and electrification, traditional approaches to partnering and running organizations could well be setting up the auto industry to be disrupted. 

“Fast and savvy organizations that build their own agile ecosystems and create smart partnerships, but without locking themselves into technologies that may become quickly outdated, will be best positioned to afford the needed ‘CASE’ investments of the future and to prosper from the coming industry changes rather than being rolled over by them,” Wakefield went on to say.



Inside the numbers: Supply, demand and off-lease volume

NEW YORK - 

Your credit is good and the lease contract on your 2015 vehicle is about to expire: what are your options? You could choose to pay the residual and keep your current ride. You could trade the vehicle for a new one or for an alternative used car. Finally, you could hand in the keys and wait for the bus to take you back home.

When thinking about the effect of the ongoing surge in off-lease volume, it is important to keep these options firmly at the front of mind. Market participants are right to fret about the possible effects of off-lease volume, but not for the reasons usually put forward. Returning an off-lease vehicle certainly causes an increase in supply but, usually, it also generates demand for a replacement vehicle.

Determining the manner in which these forces balance is not a straightforward exercise. One could argue that if the customer leaves with a higher valued vehicle, there has been a net increase in demand because of the transaction. Yesterday the customer was happy driving a $10,000 car. Today they are driving a $20,000 car, therefore they have demanded “more” car. If the client leaves on foot, or in a lower valued vehicle, the net result is an increasing supply to the market. Most commentators, when considering the ongoing surge in off-lease volume, ignore this complexity, recognizing the car entering the lot but ignoring the one that leaves.

The other point is that the distinction between the new and used markets for cars, at least on the demand side, is a fine one indeed. The last time I bought a car, I entered the dealership determined to buy a used Jeep Wrangler. That I drove away in a brand new one suggests either that relative prices were favorable or the sales person was very good at their job. If a sucker, like myself, is enticed to switch to a new car, the used car market does not really suffer. There exists only a market for cars, and players in this space would, frankly, rather sell you an expensive new one than a cheaper old one. If someone swaps their used off-lease vehicle for a new one, this transaction is a positive outcome for all players in the auto industry.

In reality, only three factors unambiguously affect the overall supply of cars in the economy and hence the prices we expect for cars for a given level of demand. The factors are domestic new production, net imports of new and used vehicles, and the rate at which older vehicles are retired from service.

The first two of these factors are easy to quantify using readily available statistics. Compiling data from various trade sources, we find that real net vehicle imports grew by 20.4 percent in 2015 before slowing to 5.8 percent in 2016. Domestic production, meanwhile, continued its slow secular decline that began immediately after the recovery from the Great Recession. The number of cars manufactured in the U.S. fell by 2.1 percent in 2015 and by 5.9 percent last year. These figures should be viewed in the context of consecutive record new vehicle sales numbers over the past two years. If we assume that imports and home-grown cars are roughly equally prevalent, we find that there was a surge in vehicle supply in 2015. This surge was driven primarily by a climbing greenback, but 2016 was basically a wash.

New vehicle manufacturers from around the world might be tempted by the surge in off-lease volume to increase production relative to baseline. People returning three year old leased cars, after all, have recently demonstrated a willingness and an ability to drive a new car away from a dealership. Carmakers know that these people are prime prospects because they need wheels the moment the keys are returned. If this sales strategy is unsuccessful, which happens if non-traditional lessees return to used car ownership, we might be left with a glut of cars in the marketplace that are too new for the prevailing market.

At the other end of the spectrum, a consideration of old car retirement is also needed. We recently conducted a deep-dive on the nature of U.S. passenger vehicles by considering the most recent Consumer Expenditure Survey, conducted in 2015. Respondents were asked about the vehicles they owned and model years were recorded. We can use these data to determine, with some precision, the age profile of the U.S. vehicle fleet.

In 2008, on the eve of the Great Recession, 42 percent of vehicles owned by Americans were ten or more years old. By 2015, in contrast, a full 52 percent of vehicles had been around for a decade or more. The aging fleet is partly due to ongoing improvements in production standards. The numbers also suggest, though, that there are lots of clapped out cars on the road that are due to be retired. By our calculations, the number of vehicles entering retirement each year grows by 25 percent between 2013 and the high-water mark that arrives in 2019. This high rate of vehicle retirement represents a reduction in supply that helps to cushion any increase in production at the new end of the pipeline.

The other startling feature is the dearth of autos in the 5- to 9-year-old range — vehicles that were introduced to the market during the depths of the recession. In 2008, 34.6 percent of cars fell in this band but had fallen to only 24.6 percent by 2015. If lessors are currently feeling the heat, it is nothing compared to the inferno they will face if they are currently originating large volumes of three-year leases. The rate of vehicle retirements plummets in 2020 as the thin cohorts hit peak retirement age. This inevitable process yanks away the cushion from the vehicle supply chain.

To summarize, we currently have lots of new cars, lots of old cars, and very few middle aged cars in the national fleet. This situation leads to some interesting dynamics in the pricing of automobiles. For one thing, the prevalence of lightly used cars means that new vehicle manufacturers have very little pricing power. We have seen new vehicle sales fall markedly this year, and generous incentives have been offered to move stock.

We have also seen significant compression in used car prices. This can be seen, for example, in the average of all wholesale transactions for 0-3 year old vehicles from the NADA Auction.net database. Our analysis shows that prices of light trucks have fallen by 3 percent since their peak value in 2011, while car prices have declined by a full 13 percent. In contrast, 4- to 6-year old cars have fallen by only 4 percent while older trucks have surged higher by 10 percent. In other words, relative discounts one might expect when purchasing an older vehicle have declined considerably. People who are in the market for a 5-year old car are finding that they can get a 3-year old version without spending much more money.

So, where does all this analysis leave us? It is the combination of too much production and insufficient demand for new vehicles that is depressing newer car prices. It is not that there are too many cars in the market alone. Production (which includes imports) has shown signs of slowing, suggesting that manufacturers have worked to curtail the emergent glut of new cars.

Financial interests are far more exposed to prices of new and slightly used cars than they are to prices of older cars and clunkers. Markets are therefore watching the auto industry closely for signs of strain.

When thinking about car prices, close attention should be paid to the nature of vehicles being driven; the manner of their financing is rather less consequential.

Tony Hughes is a managing director at Moody’s Analytics, where he leads the development of used-car price forecasts. Hughes also conducted a webinar about this topic with AuSM earlier this year that’s available here.



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