Leasing has been steadily growing for the vast majority of vehicle segments and as automakers switch their incentive focus to support this upswing, residuals will likely improve in the short term, explained ALG in its latest Residual Value Report.

Manufacturers’ movement away from cash support toward lease incentives will lessen the negative impact on residual values since lease incentives are less visible to consumers, ALG officials indicated. Unlike cash incentives, lease incentives do not directly discount the value of the vehicle. However, when leasing grows, in a few years a surge of used vehicles will hit the remarketing lanes, which will likely take a toll on wholesale values.

Since leased vehicles return to the market faster, higher levels of lease penetration will distort used supply, according to ALG.

This effect may be counteracted by offering extensions on current leases. In either case, it could lead to a larger than natural supply of vehicles returning to the market over the next few years.

The tightening of bank lending regulations has made it more difficult for consumers to obtain credit. Consumers that are able to obtain credit have become more cautious about investing in a new car.

Overall, the near-luxury and midsize vehicles have seen a large jump in lease penetration rates, the company stated. As can be expected, lease penetration for full-size pickup and midsize SUVs were down between 2006 and 2007, as automakers tended to push cash incentives rather than promoting leasing for these units.