BANDON, Ore. — The disparity between contracted residual values of leases and the vehicle's actual end-of-term worth has been on a steady hike each year since 2005, with 2009 leases likely to hit a per-vehicle residual value loss of more than $2,000, according to CNW Research, which suggests this expanding gap is "troublesome."

"While the loss-per-vehicle number may decline somewhat by the end of the contract period due to outside influences such as a run-up in new-car prices dragging used values upward, the trend is what matters," explained Art Spinella, president of CNW.

Many likely remember when several of the big automakers, particularly domestics, pulled out of the leasing market. One of the driving factors was the large losses these companies posted after predicting residuals inaccurately. Many of these automakers have since returned to offering leases, albeit as a more abated level.

And as the CNW data indicates, apparently the losses have been on an upward trend for the last five years.

For leases written in 2005, the residual value loss per vehicle was just over $500. This climbed to $1,000 in 2006 and over $1,500 for 2007 leases, before hitting close to $2,000 the following year.

"As we saw in the final days of the last lease bulge when the industry had a $10 billion shortfall between contract residuals and actual used values for those leased cars and trucks. It drove many lessors out of the business," Spinella shared.

"The current gap has been growing since 2005 as more automakers offer subvented leases cutting either interest rates to near zero or boosting residual-value projections well past ALG guidelines to bring monthly lease payments to a level consumers can't afford to pass up," he added.

Meanwhile, automakers haven't necessarily been reckless or risky, but Spinella acknowledged the strong temptation that exists.

"Especially when fueled by dealers who believe their lease program is somehow inferior to a local competitor's lease offers," he emphasized. "Word to the wise: To avoid a replay of the billions of lost dollars seen in the early years of this century, it may well be better to stick with ALG if there's any doubt whatsoever."

Used Sales Show Strong Start

Moving on, CNW expects that, based on the first 15 days of January, used-vehicle sales this month will total approximately 1.95 million units, an 8.9-percent gain on January 2009.

Independent dealers are likely to show the biggest improvement, with a projected used sales increase of 15.1 percent. Meanwhile, used sales for franchised dealers are likely to improve 6.6 percent and private sales are expected to move upward 5.7 percent.

"2010 is the year of the 'wet-dog' with the used industry shaking off excess gloom and possibly registering a near-40 million unit year," Spinella stated. "January '10 was the best since that month in 2008, a year when the industry sold about 36.6 million used units.

"The difference: The economy was on a steep decline in '08 while it is on a slight upswing this year," he continued. "CNW expects the first quarter to be slightly ahead of last year, gaining momentum from April through December."

In more good news, franchise dealers, independents and private sales have all seen used transaction prices climb from a year ago. This is consistent with supply shortage of clean used vehicles as well as the fact that some consumers have headed back to the more expensive trucks.

Interestingly enough, though, CNW pointed out that franchised stores, in particular, saw their transaction prices dip roughly 2.3 percent compared with December.

"That could well reflect some pretty horrific weather in major parts of the U.S.," Spinella shared.

As far as independents, their transaction prices in January were down close to 1.8 percent compared with the prior month.

Floor Traffic Surges

Next, CNW looked at floor traffic at dealerships, which was up significantly in the first 15 days of January compared with the same period of 2009. In fact, used-car traffic jumped 62.1 percent year-over-year and new-car traffic climbed 45.8 percent, CNW pointed out.

The CNW Used Floor Traffic Index was 62.1, and the New Floor Traffic Index was 59.1. Analysts said these figures are "good news," but warned that they are still a ways off from the full-year indices of 2008. That year, which CNW called a "mediocre" period, the used index was 94.9 and the new index was 103.4

"You can't sell a vehicle if no one visits the showroom. Old axiom, but true," Spinella commented. "The resurgence of floor traffic at dealerships and lots is only a piece of the economic puzzle.

"CNW is also seeing increased floor traffic at other retail establishments. The Christmas selling season had more activity (store visitors as well as transactions) than the previous year but fell short in terms of dollar sales in large part because everything was discounted to a bare-bones level," he continued. 

"For cars, it's necessary to build floor traffic today in order to sell vehicles in three to six months. The current numbers seem to indicate a strong spring-summer selling season," Spinella concluded.