Auto Lessors Release Year-end 1999 Survey

For Immediate Release
Contact: James Burzotta
President, ACVL
615/467-1900

Larkspur, CALIFORNIA, June 23, 2000. The Association of Consumer Vehicle Lessors announced today the release of their "Year-End 1999 Indirect Auto Leasing Survey" detailing the lease performance of the largest vehicle lessors. Vehicle lessors lost an average of $2,592 per returned end-of-term leased vehicle in 1999, 55 percent more than in 1998. This is by far the largest average residual value loss in the seven years for which the Association of Consumer Vehicle Lessors (ACVL) has been preparing surveys. High residual losses, which are greatly affected by general used car market forces, were the only sour note in an otherwise banner year for lessors in which volume was up, credit losses were down; and approval and booking efficiency increased.

The ACVL "Year-End 1999 Indirect Auto Leasing Survey" details the lease performance of the largest retail vehicle lessors. Key volume-related data including applications, approvals, booking rates and totals are shown on an annual basis from 1991 through 1999. The ACVL respondents originated approximately 80% of all retail vehicle leases in 1999, so the survey presents a comprehensive overview of the leasing policies and results that dominate the marketplace.

All twenty-seven of the ACVL members, which includes banks, automobile manufacturer and distributor finance companies and independent finance companies, participated in the study. The data was compiled showing the results for three groups: large lessors (the largest seven respondents); medium-size lessors (the other twenty respondents) and all twenty-seven respondents. The survey data were compiled and tabulated by KPMG Peat Marwick under direction from Bank Lease Consultants.

ACVL medium lessors report strong growth. After a slight decline in volume in 1998, ACVL members as a whole reported modest growth in their lease volumes in 1999. New lease applications increased 2.3 percent to 4.92 million. (See Exhibit 1.) However, due to a significant increase in boarding rates, new leases booked increased 7.3 percent in 1999 to 3.20 million and dollar volume rose 6.4 percent to $83 billion. Almost all of this growth came from medium size companies (those with less than 300,000 leases in their portfolios). For example, 1999 dollar volume of new leases increased 25 percent for medium size lessors compared to just 7 percent for large lessors. Medium lessors participating in both the 1998 and 1999 surveys increased their applications 6% but saw their total leases booked jump 18%. Large lessors (on an aggregate basis) had a 5% increase in applications but just a 4% increase in booked leases, indicating that their efficiency declined slightly.

Exhibit 1
1999 Lease Volume Increase

Reversing two years of declines in lease approval and booking ratios, on an aggregate (weighted) basis, the booking rate of applications increased from 64 percent in 1998 to 67 percent in 1999. Medium lessors have had the greatest increase, particularly the smaller ones. On an unweighted basis, the booking ratio of medium lessors jumped from 57 percent in 1998 to 64 percent in 1999. Although large lessors continue to have somewhat higher booking ratios than medium lessors on an aggregate basis (69 percent to 64 percent), for the first time, the typical large lessor had a lower booking ratio than the typical medium lessor (64 percent to 62 percent on an unweighted average basis).

End-of-term losses reflect the weakening used car market. End-of-term residual losses of ACVL member lessors increased dramatically in 1999, reflecting the general decline in used car market prices. On an unweighted basis in which each lessor’s portfolio is treated equally, the percentage of returned vehicles resulting in losses increased from 75 percent in 1998 to 86 percent in 1999. (See Exhibit 2.) More significantly, the average loss per returned vehicle for the typical lessor (including the gain vehicles) increased from $1,258 in 1998 to $2,209 in 1999, a 76 percent increase. In addition, the weighted average loss was about $380 greater than the unweighted average loss, indicating that the lessors with the largest volume had the largest losses. The weighted loss per returned vehicle increased from $1,672 in 1998 to $2,592 in 1999.

Exhibit 2
1999 End-of-Term (EOT) Returns and Residual Losses

The percentage of vehicles reaching lease end that were returned to the lessor also increased from 45 percent in 1998 to 53 percent in 1999, so more leases ended with residual losses. The end of term return rate for medium lessors increased to 47 percent from 42 percent in 1998. Higher dollar average losses result in higher return rates, so this result is to be expected.

Exhibit 3 shows the change in the rate of early terminations by term for leases originally scheduled to terminate in 1999. The data indicate that more leases reached end of term in 1999 than in 1996 for each lease term. However, compared to 1998, the early termination rate increased for every term except 36 months.

Exhibit 3
ACVL Member Change / Decline in Early Termination Rate by Term
1996-99

Credit quality is consistently high. The 1999 ACVL Lease Survey reports credit quality based on the credit bureau score distribution of funded leases. Although there is a wide distribution of scores in new vehicle leasing, 68 percent of respondent leases (unweighted) had FICO scores greater than 680 compared to 57 percent in 1998. The proportion of leases with FICO credit scores exceeding 720 increased from 37 percent in 1998 to 42 percent in 1999. For used car leases, only 32 percent had FICO scores exceeding 720 and 57 percent had scores exceeding 680. The survey also reports on the percentage scorecard approvals and scorecard overrides.

Lease terms have shifted dramatically. In recognition that the percentage of vehicles returned at lease end with residual losses is generally higher on the shorter terms than the longer term leases, many lessors increased their average lease terms in 1999. The weighted average term for all leases written for new vehicles was 37.1 months in 1999 compared to 36.5 months in 1998. Surprisingly, the weighted average term of the medium lessors decreased from 43.6 months to 38.6 months. However, the median term of the medium lessors increased from 42.5 months to 42.9 months indicating that it was a small number of the largest medium lessors that caused the weighted average to decline.

Security deposits is another area where lessor policies are changing rapidly. A few years ago, security deposits were so commonplace that they were collected in virtually all leases. Now, ACVL members report that only 40 percent of leases (on an unweighted basis) had security deposits including only 33 percent of leases among medium size lessors.

ACVL Survey was expanded to include new areas in 1999. The ACVL survey was expanded to include a number of additional topics in 1999 including: residual loss forecast assumptions; residual loss estimation methodologies; vehicle repair standards, use of the Internet, end-of-term lease management activities; and pricing model treatment of deferred taxes, capital costs and like-kind exchange.

The ACVL Lease Survey is a comprehensive statistical overview of the 1999 vehicle leasing industry. It is thus a valuable data source for understanding the evolution of the vehicle leasing industry.

The ACVL was founded in 1993. Based in Larkspur, California, the ACVL is a national trade association for the largest manufacturer and import distributor captive finance companies, banks and independent leasing companies whose primary goals include increasing consumer understanding of lease benefits and responsibilities through improved disclosure. For information on purchasing the Survey, please contact the Association of Consumer Vehicle Lessors at 615/383-1930, or 415-461-1999. Further information about the ACVL and consumer vehicle leasing may be found on the Association’s web site: ACVL.COM.