2008 went just as we predicted with used vehicle prices dipping down consistently to a mark we have not seen in five years. Dollar parity, market saturation, fuel prices and of course economic conditions were the contributing factors.

2009 has rebounded nicely in the first quarter due to a low volume of used product. Lease vehicles are in short supply for a couple of reasons. One, lessees have chosen to extend as opposed to replace to avoid large disposal losses and two, credit constraints have restricted the ability of the suppliers to replace vehicles as quickly as they would like.

The amount of rental vehicles that are currently available in the marketplace is down substantially due to the fact that the manufacturers have moved away from the buyback program therefore leaving the rental companies responsible for the residuals. With this being the case, the rental companies have decided to utilize their vehicles a little longer than usual to allow depreciation to catch up.

Trade-ins are way down for the simple fact that new vehicle sales are at the lowest level we have seen in decades which obviously minimizes the amount of used vehicles coming into the dealerships.

As we all know, vehicles eventually have to be replaced and it looks as if the consumers, most likely because of economic uncertainty have decided to purchase used as opposed to new. This has lead to a refreshing, positive first quarter that has seen used vehicle pricing rise 6% since this past December and just under 10% since last July. Truly the first bit of optimism I have seen in the auto industry in almost two years. And while we predicted that things were going to become bleak, I think I would be understating if I said that we were naïve as to how bad things were really going to get. We are in the midst of historical times.

Unfortunately, I predict that our optimistic balloon is about to burst and that things are going to get worse before they get consistently better. The rental companies are going to have to eventually replace units, manufacturers have record amount of lease returns coming over the next 12-18 months, which will mean a saturated market. We know from past experiences that market saturation has an adverse effect on pricing. Fuel prices and unemployment are on the rise, consumer confidence is at an all time low and we haven’t even discussed what is happening to the “Big 3″. All in all, 2009 is not looking promising.

The one positive as far as used vehicles are concerned is the drop in the Canadian dollar, which has lead to U.S. buyers coming back into Canada. Unfortunately this will have little, if any impact on the average fleet unit as they seem to be up here purchasing higher end vehicles or larger sport utilities, ironically, the same type of vehicles that were shipped up here when our currencies were comparable.

To summarize, we need to continue to be diligent when it comes to managing your fleet as used vehicle prices are going to drop even lower than they were last year. With the federal government introducing the CSCF (Canadian Secured Credit Facility) in its recent budget to help stimulate vehicle and equipment leasing, it will hopefully remove the handcuffs from the leasing companies and enable us to respond to your vehicle needs. But if this does come to fruition, as there is still a lot that has to be done before anybody sees a penny, we still need to ask ourselves is this the right time to replace? You need to understand completely the ramifications of replacing units simply because their term or mileage is up, particularly as we move closer to the introduction of the 2010 models. Extending your vehicles and absorbing minimal maintenance costs as opposed to large disposal losses could ultimately save your company thousands of dollars.

Each and every one of us has been mandated to manage costs to the absolute best of our ability in this very trying time. This means that more than ever you should rely upon the experts to assist you with these difficult decisions. Foss National Leasing is not dwelling on these times in a negative manner but rather, embracing them as an opportunity to explore alternative ways to manage fleets while we are adapting to the economic changes we are currently facing.

As always, I invite you to contact me directly with any questions, cares or concerns you may have as it pertains to the remarketing aspect of your fleet.

Regards,

Todd Ritza
(905-709-7686)
Vehicle Remarketing Manager

tritza@fossnational.com