Prices for smaller used cars may rise in next few weeks
DETROIT -- Trade-in values of compact and mid-sized used cars are expected to peak over the next few weeks, a senior analyst at NADA Used Car Guide predicts, citing a shortage of used-vehicle inventory, rising gasoline prices and demand for fuel-efficient vehicles.
Jonathan Banks said prices for all used-vehicle segments will remain stable over the next two months, but "clean, late-model used vehicles under six years old with reasonable mileage will command top dollar."
Used-vehicle prices for compact and mid-sized cars rose an average of $300, or 3 percent, from March to April, and values have increased an average of $500, or 4 percent, since the start of the year, according to the used-car guide.
Used-vehicle prices typically peak in March and depreciate about 15 percent by year end, Banks said. But because of an inventory shortage of popular models resulting from fewer off-lease vehicles returning to the market and fewer trade-ins, used-car prices will peak in April or May, he said.
'Aggressive' trade-in offers
"The ongoing decline in the used-vehicle supply that began in 2009 has made it challenging for new-car dealers to consistently stock reliable, well-maintained used vehicles," Banks said in a statement. "This means that dealers will be aggressive with trade-in offers for used vehicles that are in high consumer demand."
Manheim Consulting reported that its Used Vehicle Value Index in March stood at 126.2, up from 125.8 in February and 124.2 in March 2011, but below the record 127.8 posted last May.
The index measures changes in wholesale used-vehicle prices and is adjusted for make, model and time of year. It started at 100 in 1995.
Tom Webb, Manheim chief economist, says the index should have an "upward drift" and that wholesale prices eventually will reach the May 2011 peak, but prices may level off before that happens.
'Pretty close' to record
"We're pretty close," he said of the previous index peak. "It wouldn't take much, but my expectation is that if it does" set a record, that will happen "over the next four or five months."
The National Automobile Dealers Association, which publishes NADA Used Car Guides, estimates that the supply of used vehicles less than five years old has declined 14 percent since 2009. Used-vehicle prices remained high through July last year because of a new-vehicle shortage stemming from the natural disasters in Japan, which led to a spike in demand for used vehicles, Banks said.
"Over the past few years, the auto industry has gone through automaker bankruptcies and restructurings, a challenging economic environment and natural disasters which have resulted in significant seasonal volatility," Banks said in the press release. "This year, used-vehicle prices will return to a more normal seasonal pattern."
Prices of some used cars are expected to decline in June and continue to decline through the second half of the year. NADA estimates that July's prices will be about 1.5 percent below April's.
Arlena Sawyers contributed to this report.
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