Fuel economy can sell new cars. Used cars? Not so much
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Automakers expect to excite new-vehicle buyers with big gains in fuel economy over the next few years. But when those highly efficient vehicles are sold as used, mpg may not matter so much.
ALG, a leading industry monitor of vehicle values, predicts that used-vehicle buyers won't pay a premium for the dramatic improvements now showing up in new vehicles.
That could complicate life for auto companies as they determine the prices they can ask for their improvements in fuel efficiency, says Larry Dominique, executive vice president at TrueCar Inc., which owns ALG.
"Used-car customers behave very differently than new-car customers," says Dominique, who was head of North American product planning for Nissan and Infiniti until last fall.
"Things that are worth 'X' in a new car are worth a fraction of 'X' as a used car," Dominique says. "A $2,500 navigation system might be worth $500 in the used market. To a used-car customer, that value isn't going to pay itself back."
He predicts that better fuel economy will face the same fate. So vehicle planners can't necessarily raise vehicle prices to reflect improvements in mpg.
ALG, which supplies the future residual value calculations that most banks use to set lease rates, is beginning to scrutinize how the large new gains in fuel economy will play out in the used-vehicle market, Dominique says.
Lease prices are set based on the predicted worth of the vehicle at the end of the lease period. High used-vehicle prices allow lower-cost leases on new cars.
Used-vehicle prices have been high because of the dearth of inventory after the recession.
"Supply is too tight, and so prices are high," Dominique says. "It's entirely possible that a year from now, whatever pricing influence better fuel economy has in the used-car market is lost in the supply-and-demand issues."
You can reach Lindsay Chappell at lchappell@crain.com.
