Arab Today, arab today the lehman time bomb
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The Lehman time bomb

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Arab Today, arab today The Lehman time bomb

Berlin - Arabstoday

When Lehman Brothers collapsed three years ago this week, new-car sales did, too.So, starting this week, the shortage of late-model used cars -- already causing used-vehicle prices to soar -- will worsen dramatically because so few three-year lease cars are returning.Only 90,000 leased BMWs are returning this year, for example, compared with 146,000 in 2008.Dealers are having trouble getting enough used cars. And the short supply means used-car prices are bumping up against some new-car prices. For example, kbb.com lists a used 2008 Chevrolet Malibu LTZ with 23,000 miles at $19,950 -- and a new 2012 Hyundai Sonata GLS at $22,450.And things will stay that way because three years of far-below-trend new-car sales mean tight supplies of used cars until 2014 or later if the economy doesn't pick up. Jonathan Banks, an analyst at NADA Guide, said returns of three-year leases will be especially starting low in the fourth quarter.The short used-vehicle supply is a problem for dealers because they depend more than ever on used-vehicle volume to make up for low new-vehicle sales.Compounding the problem: The high values of cars coming off lease now mean more customers will buy their vehicles at the end of the lease term because the purchase price is significantly lower than that of a comparable replacement.At Mercedes-Benz of South Orlando in Orlando, dealer Dorian Boyland says owners are buying 30 percent of their Mercedes vehicles at the end of leases -- a higher percentage than in the past.Boyland said he keeps most trade-ins and lease returns for his used lot, but he must also buy at auctions to stock his certified used-vehicle program."You cannot live on your lease returns ... to be in the certified pre-owned business, says Boyland, owner of the 13-store Boyland Auto Group. "There is not enough off-lease inventory to do that."Factories once subsidized low-cost lease deals mainly to boost new-vehicle volume. Now they are setting leasing strategies with an eye on eventually feeding dealers and the automakers' own certified used-vehicle programs, said Eric Lyman, director of residual value solutions for ALG, which forecasts future used-vehicle prices and supplies."Leasing can be a sales channel for used-vehicle stock that a manufacturer controls," he said.That has increased significance since automakers ceded control of rental-car returns. Back when automakers, especially the Detroit 3, sold hundreds of thousands of "program cars" to rental companies and bought them back at a loss, dealers got lots of same-make used cars. Today rental fleets buy fewer vehicles, keep them longer and take the risk of reselling them. So automakers can't funnel them to their dealers.Shaun Bugbee, vice president of sales and marketing for BMW Group Financial Services, said a strong supply of late-model used vehicles for BMW dealers is key to setting a leasing strategy."It's extremely important that our dealers have a good supply of used vehicles," he said.Limited availability is forcing dealers to sell older, high-mileage vehicles. Publicly held Penske Automotive Group is among dealership groups now selling vehicles that they used to sell at wholesale.For example, penskecars.com recently listed a 1995 Nissan Pathfinder with 197,292 miles for $1,588 and a 2003 Ford Taurus with 164,945 miles for $2,988.NADA Guide says used-vehicle supplies will fall 5 percent this year and another 4 percent in 2012. ALG says supplies will hit rock bottom in 2012 and 2013 and won't return to 2008 levels until 2017.Counting only 3-year-old used, kbb.com sees the bottom 12 to 18 months out."We won't bottom out until late 2013," said Greg Russell, national risk manager for Toyota Financial Services, counting up to 5-year-old vehicles. "It may be a decade until we return to the supply of used vehicles we once had."With dealers keeping almost every used vehicle traded-in, auctions are being hit hard. And dealers also are more willing to buy used vehicles online and outside of the traditional auction channel.Auction operators are consolidating sites and buying competitors. In June, privately held Manheim, the nation's largest auto auction company, closed half a dozen auctions. It now has 73 North American auction sites.In August, Jim Hallett, CEO of KAR Auction Services Inc., parent company of No. 2 auction house ADESA Inc., said forecasting future conditions is difficult. ADESA recently agreed to buy online auction competitor Openlane Inc.In the second quarter, ADESA's vehicle volume fell 14 percent. Nationally, auction volume fell 11 percent in the second quarter, the National Auto Auction Association said.Larry Dixon of NADA Guide said: "We're very bullish on the used-car market," although he doesn't see prices continuing to rise."On the flip side, we don't expect prices to drop off dramatically either," he said.ALG's Lyman forecasts prices for used vehicles will peak in January and then slowly ease."As a recovery starts, the first buyers to come back are focused on used cars, the rational, safe buy," he said. "But as the recovery gets stronger, buyers shift their attention to new cars."Projected residuals on 3-year-old off-lease vehicles at mainstream brands are 48 percent of retail value so far this year, up from 45 percent in the first eight months of 2008, Lyman said.But the residual forecasts set by ALG and others are not high enough to suit some carmakers. Eric Ibara, director of residual value consulting at Kelley Blue Book's kbb.com, expects captive finance companies to increase their projected residual values on leased vehicles, thus cutting the payments for consumers.Essentially, automakers would be betting that those cars will be worth more three years from now than kbb.com thinks they will.Said Ibara: "As long as they reserve for the difference between their enhanced residual and the more realistic residual, they should be OK." From / AutoNews  

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