Valuation Services: COVID-19 Supplemental Report (05.05.20)

Lease Portfolio Expectations

The massive decline in wholesale auction prices has prompted many in the industry to speculate on the extent of captive finance company lease portfolio losses. We will help address this question by first putting the size of current lease portfolios into perspective before providing our expectations for lease portfolio losses moving forward.

We will do this by leveraging J.D. Power’s Market Timer data, which provides projections for the number of vehicle owners and lessees who will return to market over the next 36 months, our full suite of wholesale price data (i.e., not just physical auction sales), and our current outlook for used vehicle wholesale prices.

Starting with the current size of the lease market, we estimate that industry-wide there are currently 12 million active leases representing a combined value at maturity in excess of $200Bn. We estimate that industry-wide portfolio losses would reach $10Bn if used vehicle wholesale prices at lease maturity were 5% lower than expected, and $31Bn if prices were 15% lower than expected.

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