The Invisible Hand, The Earthquake/Tsunami, and The Toyota Prius

Today, we feature a story on a lighter but fascinating subject in the laws of supply and demand. Last week, I had the chance to talk to John Sternal, who runs communications for LeaseTrader, a site that serves as a secondary market for the buying and selling of automotive leases. LeaseTrader has been around since 1998, and in 2010 completed 75,000 transactions (up from 60,000 in 2009). On the buy-side, individuals primarily use the site, but one small business owner recently completed his 13th transaction on it. Using LeaseTrader, he "takes short-term leases and uses them for his employees and himself." Even though for most buyers and sellers of car leases, the site is little more than an intermediary that facilitates a transaction just as a financial exchange serves to bring buyers/sellers of equities together, for procurement and data junkies like us, there's some fascinating stuff we can glean not only from closed transactions, but also the sell-side "order book."

Consider just how quickly members of the LeaseTrader marketplace reacted following the earthquake/tsunami in Japan. According to LeaseTrader, automotive dealers reported within days "a heightened frenzy over the Toyota Prius and a few other select Japanese models because of a possible supply chain shortage stemming from recent events in Japan. Naturally, a majority of these dealers have reduced or cut their incentives on any deals for the vehicle. Consumers selling and transferring their Prius leases are also aware of the supply chain issues and have cut incentives to any interested buyers." As a result, "listed cash incentives from drivers looking to unload their Toyota Prius lease contract are [now] averaging near zero, down sharply from an average of $450 in January."

In our conversation, John noted that it's exceptional how the results of a disaster halfway around the world can echo through secondary consumer markets like LeaseTrader just as quickly as they do commodity and other markets. The power of the Internet in this regard is truly spectacular. It makes it possible for "a general consumer who is witness to the same news updates as a dealer or company" to move just as quickly as "the dealer," who in this case is the competition. In other words, consumers can now "take advantage of greater supply chain transparency" just as large global businesses.

Historically, John noted that LeaseTrader has been a useful proxy for overall consumer credit/leasing markets. During the credit collapse, leasing "came to a standstill." Before the recession, it was roughly 30% of the market, but this dropped to 9% during it. Now, it's "right up around 20%." LeaseTrader sees the impact a number of months down the line (8-10, in most cases) because it's a secondary market. Consider in the spring of 2010 how "dealers pushed new leasing programs aggressively" and now LeaseTrader is seeing a noticeable uptick in volume based both on primary market lease value then as well as new incentives that can enable those leasing new vehicles "to get an even better deal now."

Fascinating stuff. And also some greater lessons for businesses when it comes to the speed with which even consumer markets react to supply chain disruptions and risk.

Jason Busch

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