Will leasing's rise spell sleepless nights?

February 8, 2012 - 12:01 am ET

Jim Henry is a special correspondent for Automotive News

There can be too much of a good thing, and that includes leasing.

Several dealers at last week's American Financial Services Association Vehicle Finance Conference in Las Vegas said they would like a bigger comeback for leases.

But some lenders at the same conference said they're leery of leasing and don't want to see the factories drive lease penetration too high with incentives.

"As a car dealer, I would rather see people lease a car than buy," said Bill Underriner -- president of Underriner Motors (Honda, Hyundai, Volvo, Buick) in Billings, Mont., and the new NADA chairman -- in a Feb. 2 panel discussion. "Generally in 24 to 36 months, you're going to have that customer back into your dealership, and they're going to have to decide what to do with that car."

Lease penetration has more than doubled since it bottomed out at around 10 percent of new-car volume in the third quarter of 2009, according to the Power Information Network.

Tom Gilman, CEO of TD Auto Finance, said during another panel discussion on Feb. 3 that the idea of leasing approaching its heyday of 30 percent of new-vehicle volume again scares him. Gilman said he was forced to pull the plug on leasing at then-Chrysler Financial in 2008 because the captive couldn't borrow enough money. At the same time, resale values back then were falling for lease returns, especially for big pickups and SUVs.

"You learn a lot of lessons when you liquidate a portfolio," Gilman said. "When I hear 30 percent leasing, I get nervous. That makes me lose sleep at night. I haven't seen the numbers for January, but it was 26 percent leasing in December. We're starting to do all the things we did before."

Maybe it's too much to ask in a cyclical industry, but isn't there something in between?

You can reach Jim Henry at autonews@crain.com.

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