Waived leasing contracts cause price drop on the second-hand car market

• Leasing companies sell repossessed goods themselves or using dealers

Marian Anton

Leasing companies are facing an increasing amount of repossessions, as more and more customers can"t afford to make their payments anymore, because of the depreciation of Romania"s national currency caused by the international economic crisis.

The current economic situation and the fact that leasing contracts are taken out in Euro, have caused many individual customers to bring back in the goods they leased. Thus, a new type of business has arisen: the sale of repossessed cars and equipment.

Cars repossessed from customers are stored in a parking lot and are either sold by the leasing company directly, through auto dealers or by placing ads on specialized sites.

The large number of repossessed cars will lead to an increase in the amount of second-hand cars, which will cause a sharp drop of prices on the market. Furthermore, when leasing companies will begin to experience difficulties in selling their inventory, they will lower prices even further, thus affecting the entire market even more. The new car market will be affected as well, because customers will favor buying second-hand cars, which are almost new but far cheaper.

Răzvan Diaconescu, General Manager of "Impuls Leasing", stated that, at the moment, a large number of the second-hand cars in the market, and even those found at dealers specializing in used cars, come from leasing companies which are putting them up for sale in order to cut their losses.

He also added that the company he represents does not have its own department for selling repossessed cars and that it has to find the best second-hand dealers or the best known auto-websites in order to successfully sell the cars that its customers have "abandoned". Mr. Diaconescu added that, in spite of the crisis conditions, Romania"s car market is not yet saturated and there may still be room for growth, but not for this year.

Miruna Oprescu, assistant manager and PR official at "Volksbank Leasing" Romania, said that the former has its own department for selling repossessed goods. She said that new car sales have dropped since the beginning of the year, while repossessions have been on a steady increase for the same period, with sales of repossessed goods increasing as well. The goods on sale can be viewed on the company"s website and can be purchased either directly off the company"s own sale platform, or by placing bids online. Customers can buy the car outright or they can resort to a leasing contract.

Mrs. Oprescu considers that smaller leasing companies will usually resort to car dealers, whereas larger companies will rely on their own sales department. Some leasing companies have resorted to selling the cars using both methods.

Adriana Ahciarliu, Secretary General of the Association of Financial Companies (ALB), stated that leasing companies have a collection department (which handles cashing receivables) and a resale department (sale, remarketing). The latter is tasked with the sale of repossessed cars.

According to Mrs. Ahciarliu, the most important buyers for repossessed cars should be dealers specializing in the sale of second-hand cars.

Mrs. Ahciarliu emphasized that most of the times, customers mistakenly consider that terminating the leasing contract to be the ideal solution. "First of all, by doing that they lose the entire amount paid up to that moment, and they will be put on a blacklist that will hinder their access to loans in the future", she added.