DRIVING GROWTH FOR THE REMARKETING PROFESSIONAL …

GREENLIGHT

ISSUE 23

DRIVING GROWTH FOR THE REMARKETING PROFESSIONAL

THE COMING DELUGE

Vehicle remarketers brace for flood of lease returns P4

TWO INNOVATIONS FROM MANHEIM IMPROVE ONLINE AUCTIONS P8

SOME DEALERS SKEPTICAL ABOUT VALUE OF CPO PROGRAMS P9

Everyone is busy, wrapped up in day-to-day business, so much so that we sometimes forget about those people we can affect with an act of kindness or charity. Besides helping you with your business, Santander Consumer USA can give you a chance to show heart ? especially during the holiday season ? and to make a difference.

SCUSA will be: ? Donating $3 for every

SCUSA vehicle purchased* ? Matched by a minimum $3

from auction company

Three charitable organizations each will receive a cumulative donation:

October

November

December

* In each Q4 month (October, November and December) every time your dealership purchases a car at auction, a portion of that price will be donated to the selected charities.

IN FRONT 3

LEADERSHIP

Let's Get Started

The future has arrived sooner than expected.

Chrysler products have begun funneling through the auction lanes around the country, bringing with them the Chrysler Capital name and a new name in vehicle certification ? Chrysler Capital Certified.

You already should see announcement banners and vehicle stickers introducing both to auction buyers at many of the same places Santander reconditioned vehicles currently are sold.

And you even may have bid on a Chrysler product offered at the auction by Chrysler Capital.

For those to whom this still is new, Chrysler Capital is the private-label, full-service lending program managed by Santander Consumer USA Inc. (SCUSA) and Chrysler Group LLC that finances purchases and leases of Chrysler products ? Chrysler, Jeep, Dodge, Ram, Fiat and SRT ? under a 10-year agreement.

Planning for the Chrysler Capital remarketing program, which got underway more than a year ago at SCUSA and Chrysler Capital, has been led by Steve Solomon, vice president of asset remarketing for both organizations and a former regional sales manager at Chrysler.

But don't be confused by the SCUSA-Chrysler Capital connection. Chrysler Capital remarketing and the certification program stand on their own, focused on preparing and selling Chrysler products at auction.

Creating a separate program represents a big change for us at Santander, but one that we embrace.

And yet, Chrysler Capital Certified brings to the auction the same high standards of quality, price, value, selection, performance, service and satisfaction to which customers of Santander have become accustomed through the Santander 7 vehicle certification program.

"It's the new wave in reconditioned vehicles with the same exacting standards you've come to expect from Santander," promises our advertisement in this publication.

It's a promise that we take seriously at both Chrysler Capital and Santander. So look for Chrysler Capital and Chrysler Capital Certified vehicles, and we'll look for you at the auction.

Brent Huisman SVP, Asset Remarketing Santander Consumer USA Inc.

CONTENTS

8

SEEING IS BELIEVING: Two innovations from

Manheim to improve online vehicle auctions

The Deluge A monsoon of lease returns is coming, but

4

values are expected to remain relatively stable

Active Auctions Buy Santander Consumer USA vehicles at auctions nationwide

6

Divided Opinions Physical auctions, midsize cars top dealers' choices; some express doubts about CPO

9

As Good as New CPO programs continue to be popular

10

with customers, and a powerful retail tool

11 Ebb and Flow

Still-strong values softened again in July as trade-ins and lease returns boosted inventory

GreenLight Remarketing is published by Royal Media on behalf of Santander Consumer USA Inc. For more information about Santander Consumer USA or RoadLoansTM call 888.540.5626 or visit . Royal Media can be found at . ?2014 Santander Consumer

USA Inc. Special Photo Credits: Manheim (p8) General Motors (p10), Toyota (P11).

OFF-LEASE

THE COMING DELUGE

Vehicle remarketers brace for a monsoon of lease returns, but values are likely to remain stable

BY CODY LYON

EVERYONE IN THE REMARKETING INDUSTRY is bracing for the tidal wave of vehicles coming off lease starting this fall and expected to continue for the next several years.

Rising supply from lease returns in 2014 will contribute to higher depreciation, and put pressure on residual values, according to a July report from Black Book and Fitch Ratings. While that increase is not expected to pose a material threat to the overall asset performance of used vehicles, what does the future hold when lease returns rise even higher in 2015 and 2016?

What the Great Lease Return holds for used-car values is unclear. Industry players have considered

the question of whether the market will be able to absorb the rise in volume of used vehicle for some time now, without reaching a clear consensus.

Larry Dixon, senior manager of market intelligence at the National Automobile Dealers Association's Used Car Guide, says that under normal circumstances, the volume coming back to market would be expected to apply significant downward pressure to used-vehicle prices. But the market is still in a period where both consumer and dealer appetite for new and used cars continues to grow, he says.

"Because of that," says Dixon, "we're not going to see used car prices fall off the face of the Earth." Dixon points to an economy that for all intents and purposes is still in recovery mode. That has led to a lending environment that has allowed

a large number of people to become car buyers. Some of these consumers entering the market may not qualify for the financing necessary to buy a new car, according to Dixon, so they'll look to buy used or perhaps the intermediate class of certified pre-owned vehicles. Many lease returns end up as CPO vehicles.

"There's no reason to believe that CPOs won't grow by double digits again this year," he says. Dealers have started to recognize the value that used sales add to their dealership's bottom line, says Dixon. Profits on used vehicles typically hover around 12% to 13%, roughly three times as much as they are on new vehicles.

Dixon says there are a number of dealer groups with standalone stores that want to increase their number of used vehicles for sale. Those dealer

OFF-LEASE 5

groups are going to be competing for the off-lease supply, and are anxious to get ahold of those lower-mileage, newer cars.

NADA expects that the increased supply will lead to somewhat lower prices. In 2015, Dixon says, prices could slip as much as 3%, with another 3% reduction in 2016. Ally Financial Inc., in its second-quarter earnings call, estimated the price falloff for its dealers at 5% for 2015, and another 5% for 2016.

Much depends on the age of the car and how many of its peers are on the market at the same time. Supply of two- to four-year-old cars, for example, is expected to be high, and therefore the price will be pushed lower. Rarer vehicles will be less affected.

On the other hand, Chief Analyst Jesse Toprak tells GreenLight Remarketing that a more simplistic view of the near future shows that used -car supply will increase and, in turn, will decrease prices. And while that should be good news for consumers, it's not bad for dealers, either.

Toprak says the flood, if there is one, shouldn't impact profitability much, since dealers are focused on margin. In fact, he believes the increase in volume could be welcome news from the dealer perspective, because it could mean a lift in overall sales.

TRADE-IN STRATEGIES

But Toprak warned that consumers looking to maximize trade-in value will want to pay closer attention in the new environment. "If you're thinking about [buying] a new car, and trading in your used car," Toprak says, "it's not just how much money you get for your trade, it's how much you'll have to pay for a new car."

In other words, if a consumer is going to wait a year to trade in a car, he should expect to get a little less for the trade and pay a little more for a new car. Toprak says that from the buyer's perspective, if he has a late-model car to trade, now is most likely as good as it will get for some time.

His advice for dealers is to pay close attention to the mix of vehicles on the car lot. "It's not just about having 50 used cars on a lot, it's about having the right 50 cars in their inventory," Toprak says.

Bob Graham, vice president of vehicle remarketing for Mount Laurel, N.J., based Automotive Resources International (ARI), tells GreenLight Remarketing that on the commercial side of the market, price dynamics probably won't be deeply impacted by the coming flood.

"I don't think it changes the price dynamic too much, because we have a completely different product," Graham says. "The off-lease vehicles are the ones that are typically between 24 and 36 months old, [and] they're going to be lower mileage, meaning the 20,000 to 60,000 range. But my typical vehicle is probably five years old and a 100,000 miles."

NORMALIZING SUPPLY

Graham says the market has seen a shortage of vehicles since early 2008 and it's only now getting back to a normal supply. If the influx of new vehicles and the prices for the top vehicles that go to the franchise dealerships fall just a bit, the impact will be minimal to independent dealers, the buyers of ARI's fleet vehicles.

Those buyers, in some cases, have buy-here, pay-here lots, selling older, higher-mileage cars at lower price points.

"Normal economics begs that you ask, `Will this influx push down my prices anyway?'" Graham says. "Probably yes, but not in any abnormal ways that I'm very concerned about."

Meanwhile, Alec Gutierrez, senior market analyst of automotive insights at Kelley Blue Book, says that there is an expectation that rising offlease volumes will increase at auction in the next couple years, placing downward pressure on latemodel used cars.

But Gutierrez is quick to add that pricing is still strong across the industry. "If we have this conversation in a year, we might see values at a 1% to 3% decline in price," he says.

It's a cyclical pattern, to some extent at least.

Leasing was a big part of the market in the late 1990s, and then again in the early 2000s, Gutierrez says. The market saw an early influx of offlease vehicles come back at that point, which impacted pricing. That particular cycle in the early 2000s was almost more overstated because the residuals were high, which drove a lot of leases that never made sense in the first place. "My guess is it won't be as pronounced as it was in the past," Gutierrez says.

THE CPO SOLUTION

CPOs have served as a solid outlet for leased vehicles, Gutierrez says. Consumers have been more willing to look at late-model used cars as a viable alternative to a new car because of the inclusion of factory-backed warranties and the attractive finance terms that accompany cars that are certified.

For the short term, dealers shouldn't expect to see significant declines in wholesale auction values. If they need inventory, get out there and purchase it, Gutierrez says, because Kelley Blue Book is not expecting any pronounced shortterm declines in values. A year or two from now, however, KBB expects to see values come down. That said, there will likely be greater opportunities for used-vehicle acquisition at auction in the next year or two, and some of the high prices seen today will subside.

"You might be able to get more attention on your used-car lot by lower transaction values," Gutierrez says. "And a decrease in the availability of leasing could make new-car sales a bit more challenging."

LEASE RETURNS (IN MILLIONS)

2009 2010 2011 2012 2013 2014* 2015* 2016*

THE APPROACHING TIDE

According to Manheim, the volume of off-lease vehicles will increase in the next two years to levels unseen since the middle of the last decade. However, volume is not expected to climb to the peak levels of the post-1990s off-lease surge -- 3.4 million vehicles in 2002.

4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5

0.0 Source: Manheim

*Projected

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