Will the high lease returns in 2017 affect leases in 2017?

Hi All, I’ve been long time lurker and I have a few questions for the experts.

Here is a recent article I read (http://www.zerohedge.com/news/2016-12-09/record-high-lease-returns-set-wreak-havoc-used-car-prices) regarding lease returns in 2017.

Would this affect prices for new leases? If so, what is your take on it? Would the RV also be affected?

Thanks in advance!
-Rich

Maybe 2018-2019. It takes time for a bubble to pop and really nobody can ever properly time it. If you are a bank, i hope you are building reserves during the good times (even though IRS might not like it). Worst case there will be no more leases offered like some.manufacturers did back in 2008 or they will be strict and offer it only to prime borrowers to make it easy to continue to securitize these things.

I’m hoping it will open up the CPO lease market. It’s a very small fraction of the leasing business right now, but could explode. I would be more than happy to lease a 3 year old off-lease car with a shallower depreciation curve and known maintenance history that could still have a decent warranty.

Yes but that market will be affected as well. If you having a hard time securitizing prime borrowers and new cars, no institution will finance or buy paper backed by cpo leases or they will demand a premium. In addition, there is a thread about GM CPO leases and they seem like horrible deals.

I’m still new to the lease game and still have lots to learn, but that sounds about right. I guess it would affect used car prices sooner than the RV of future leases.

I’ve said this before, we are currently experiencing the holy trifecta of great leasing (low MF + high RV + discounts/rebates). High RVs cannot last forever. I read somewhere that the recession + credit crunch led to an estimated 20 million fewer new car sales over the following years. This ‘bottleneck’ in the new-to-used car pipeline led to a shortage of desirable 2-3 yr old used cars in the subsequent years, and kept resale values very high relative to other periods of time.

With the boom in new car sales from 2014 to 2016 onwards, there’s no way those resale values can last in the real world. What remains to be seen is to what extent the OEMs absorb some of that and pass it on to consumers. They might try to play around with MF and rebates to prevent the monthly payments going up too much. But they can only do so much.

I am thinking the only reason GM offers the CPO leases are for bad credit histories that can’t get approved for a new lease. I believe the entire lease liability (payoff and monthly payments) gets reported on your credit. Maybe someone could correct me if I am wrong.