Glut of off-lease cars about to flood market that wants SUVs, trucks

Glut of off-lease cars about to flood market that wants SUVs, trucks

A few years ago, some automakers, especially luxury ones, ramped up their leasing activity and offered some very attractive deals to move cars. Now a lot of three-year-old cars are about to hit the market as they come off lease.

The problem is that they are exactly the wrong supply for consumers clamoring for SUVs and light trucks. Bank of America/ Merrill Lynch analyst John Murphy highlighted the problem when he presented his annual Car Wars report to the Detroit automotive press recently.

The situation has a few likely outcomes. Manufacturers will cut back on leasing programs, as they have already started to do. (Leasing is currently around 30 percent of the market, higher than it has been in many years, though it started to decline in April.) Because used-car supply will not match demand, used-car prices are expected to fall. With nearly new used-car prices falling, new-car transaction prices will likely take a hit, too.

Those trends apply to passenger cars only, where consumer interest is waning (see May sales article on page 3), not to other types of consumer vehicles.