Auto Lessors Release Year-end 1998 Survey

LARKSPUR, CALIFORNIA, July 26, 1999. The Association of Consumer Vehicle Lessors announced today the release of their "Year-End 1998 Indirect Auto Leasing Survey" detailing the lease performance of the largest vehicle lessors.

The Association of Consumer Vehicle Lessors (ACVL) is comprised of twenty-seven of the largest retail vehicle lessors in the country. Key volume related data including applications, approvals and booking rates and totals are shown on an annual basis going back seven years through 1992. The ACVL respondents originated approximately 80% of all retail vehicle leases in 1998. Thus, the survey presents a good representation of the leasing policies and results that dominate the marketplace.

The survey questionnaire was distributed in January 1999 to all ACVL members, which include banks, automobile manufacturer and distributor finance companies and independent finance companies. Twenty-five of the ACVL members including all of the largest lessors 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 eighteen respondents) and all twenty-five respondents. The survey data were compiled and tabulated by KPMG Peat Marwick.

ACVL lessors report decreased volumes. The ACVL Lease Survey respondents reported a decrease in their lease volumes for the first time in the 8 years of the survey’s history. New lease applications decreased 1.3 percent to 4.82 million and new leases booked decreased 3.8 percent in 1998 to 3.08 million. However, dollar volume rose 4.5 percent to $77.4 billion due to an increase in the average capitalized cost by $2,000 (8.6%) from $23,133 to $25,132. All of the volume decrease came from the large ACVL members, which collectively experienced a 17% reduction in total leases booked from 1997 to 1998 -- 2.20 million leases down to 1.83 million.

Indicative of the strong competition in leasing, lease approval and booking ratios declined for the third straight year. On an aggregate (weighted) basis, the booking rate of applications has declined from 74 percent in 1995 to 64 percent in 1998. The decline has been experienced by both large and medium size lessors. Large lessors continue to have somewhat higher booking ratios than medium lessors: 70 percent to 57 percent.

End-of-term losses show weakening used car market. End-of-term residual losses of ACVL lessors decreased slightly in 1998. The percentage of returned vehicles resulting in losses decreased from 77 percent in 1997 to 75 percent in 1998. The average loss per returned vehicle (including the gain vehicles) decreased from $1,305 in 1997 to $1,258 in 1998, a 3.6 percent decrease. The loss per returned vehicle weighted by the number of vehicles returned to each lessor also dropped from $1,835 in 1997 to $1,672 per returned vehicle in 1998. The percentage of vehicles reaching lease end that were returned to the lessor increased slightly from 44 percent to 45 percent (unweighted average of all lessors), so more vehicles were subject to residual losses. The end-of-term return rate for medium lessors held constant for another year, but the return rate for large lessors jumped from 46 percent to 54 percent.

Exhibit 1 shows the decline in the rate of early terminations by term for leases originally scheduled to terminate in 1996, 1997 and 1998. The data indicate that more leases reached end of term in 1998 than in 1996, probably because fewer lessees were in equity during the lease term.

Exhibit 1
ACVL Member Decline in Early Termination Rate by Term
1996-98

Credit quality is high. The 1998 ACVL Lease Survey reports credit quality based on the credit bureau score distribution of funded leases. There is a wide distribution of scores in new vehicle leasing although the majority of leases had scores greater than 680. The proportion of leases with FICO credit scores exceeding 720 increased slightly from 37 percent in 1997 to 38 percent in 1998. The survey also reports the percentage of "scorecard-only" 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 terms, many lessors appeared to place less emphasis on short-term leasing beginning in 1997. However, the 1997 ACVL Lease Survey found that the average lease term continued to decline for both large and medium size lessors during 1997. In 1998, the average lease term finally increased among lessors illustrating the shift toward longer terms. For large lessors, the weighted average lease term increased from 29.9 months in 1997 to 33.4 months in 1998. The unweighted average of the large lessors also increased from 32.2 months to 36.5 months. While the unweighted average term remained at 42.5 for medium lessors, the weighted average term increased from 40.2 months in 1997 to 43.6 months in 1998.

The ACVL Lease Survey is a comprehensive statistical overview of the 1998 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. ACVL members originate about 80 percent of all consumer vehicle leases in the country. For information on purchasing the Survey, please contact the Association of Consumer Vehicle Lessors at 615/383-1930.