Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Rod Lache from Deutsche Bank.
Dan Galveston [ph] - Deutsche Bank
This is actually Dan Galveston for Rod. I was wondering if you could talk about, there has been a lot of news about a leasing pullback in the industry. Could you talk about how you think that’ll affect you and also it there’s any difference in the profitability of a vehicle sale between leasing and a buy?
Charles Oglesby
The pull back in leasing is going to affect everyone. It’s going to impact the customer because in a lot of cases consumers in the past have been able to upgrade to a vehicle that they would not have purchased before, because the lease payments were less. You get more car for less money. They could turn them in every two, three, four, years, whatever the lease term was, mostly three years and drive a new one.
The industry itself is about 20% or so on the leasing side and so some of the manufacturers now are putting retail incentives in place to try to offset leasing. The end result, it is going to make an impact. I think that it will have the opportunity to improve used vehicle sales. Some of those customers that can get CPO cars, as an example, will move to that market. It will have some impact on the luxury side of the business, but I think it’ll just be in the transition.
We went through this about 10 years ago, as many people will recall, where the lease, the residual values were not equal to what the market wanted and so there were some major losses at that time. We’re going through that transition again. I think that lease will return at some pointing time. We don’t know about that, but right now it will have some impact to the marketplace.
Dan Galveston [ph] - Deutsche Bank
Is there a significant difference in profitability at all?
Charles Oglesby
No, the difference in profitability, leases, because of the way they were structured, it was basically a payment and the residual value and a lease factor that said it; so there was margin built into the lease. Now as you start working a payment again, down payment will be the difference. It can have an impact on margins, but I’m not sure that it will yet.
Dan Galveston [ph] - Deutsche Bank
- To read the full transcript on Seeking Alpha, click here »
