Used-vehicle market settles
Supply imbalances prevent price stability
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The used-car market's wild ride of the last two years or so has calmed down. But there are still plenty of signs that the market has not yet returned to the predictable patterns that prevailed prior to the recession.
For example, 3-year-old used vehicles, the bread-and-butter of many franchised dealerships' used-car operations, are scarce at auctions this year. And the former direct link between the prices at the pump and those at the auctions -- a spike in gasoline prices would cause prices of used compact cars to jump -- has weakened notably.
One constant: Prices continue to be driven more by supply than demand.
Take the shortage of 3-year-old vehicles from the 2009 model year. It has kept prices of those 3-year-old models high, despite the re-emergence of seasonal trends that are carrying prices lower.
Through mid-August, the number of 2009 vehicles sold at auctions plunged 84 percent to 285,708, down from 526,171 3-year-old 2008 vehicles sold in the same period last year, Banks says.
The scarcity of 2009s is a vivid reminder that leasing all but dried up in fall 2008 as those cars and trucks were rolling into new-car showrooms.
| Sales by vehicle age | ||
| Vehicle age | Auction sales through mid-Aug. | % change from same period 2011 |
| <1 year | 102,370 | 9% |
| 1 year | 405,282 | unchanged |
| 2 years | 296,195 | 36% |
| 3 years | 285,708 | –84% |
| 4 years | 272,169 | –20% |
| 5 years | 259,437 | unchanged |
| 6-7 years | 515,797 | 10% |
| Source: NADA Used Car Guide; | ||
| National Auto Auction Association | ||
Wait for late 2013
"Based on the vehicles sold as a lease as recorded by Polk, we don't expect things to come back until the third quarter of 2013," says Jonathan Banks, an analyst with NADA Used Car Guide. The continuing scarcity of those vehicles will support stable to high prices, he said.
During much of 2011, average used-vehicle prices soared, on a shortage of supply exacerbated by occasional spikes in gasoline prices that boosted prices of fuel-efficient used cars. Prices in 2011 didn't fall appreciably until September.
Prices are following more traditional seasonal patterns this year: rising from early in the year through late spring and softening over the summer.
The average price on a 2009 vehicle dropped 2 percent to $19,600 in mid-August compared with the average price of a 2008 model in August 2011, Banks says. The decrease in the average price of all used vehicles 5 years old and younger was less -- roughly 1.5 percent in August compared with August 2011. But despite some typical seasonal erosion, used-vehicle prices are still at historic highs, he adds.
"Last year we were breaking records every month," says Banks. "The fact that 3-year-olds are down 2 percent off a record year is nothing. In August 2010, a 3-year-old 2007 was worth $17,500. We've gained $2,000 on a 3-year-old vehicle."
At the same time, the number of 2012-model used cars and trucks sold at auction through mid-August rose 9 percent to 102,370, compared with the number of 2011 models sold in the same period last year.
Vehicles sold at auction that are less than a year old typically are retired rental vehicles. The numbers of vacationers, and the length of vacations, dropped this year, prompting some rental companies to pare their fleets, according to Kelley Blue Book.
Banks says he expects the supply of retired rental cars being sold at auction to remain high through the third quarter.
He also predicts prices of all used vehicles up to 5 years old to follow seasonal depreciation patterns, with declines of about 3 percent each in August, September and October. November prices will remain relatively flat and December prices will show a slight uptick, he predicts.
| Fuel rises, small cars fall | |
| Despite recent gasoline price increases, prices of fuel-efficient used cars have dropped more rapidly than those of large trucks. | |
| Fuel-efficient used vehicles | Price decline mid-July to mid-Aug. |
| Compact car | –3.1% |
| Compact crossover | –2.6% |
| Entry-level car | –2.5% |
| Used large trucks | |
| Luxury SUV | –1.9% |
| Full-sized pickup | –1.7% |
| Full-sized SUV | –1.3% |
| Source: Black Book | |
Roller-coaster pump prices
The roller-coaster ride of gasoline prices also has disrupted seasonal used-vehicle price trends. But the impact of those price swings appears to be diminishing.
Ricky Beggs, managing editor of Black Book, says his data show that prices of fuel-efficient vehicles have dropped more steeply in recent weeks than prices of large pickups and SUVs, even though the average price of gasoline is about 38 cents a gallon higher than it was in July.
For example, from mid-July through mid-August, the average price of used compact cars -- which, according to Black Book's categories, include the Ford Fiesta and Honda Fit -- across all model years dropped 3.1 percent, Beggs says. In the same period, prices of full-sized pickups across all model years dropped 1.7 percent.
Beggs says the supply of large pickups and SUVs is smaller and their values driven less by gasoline prices than in 2008. That's when gasoline prices fluctuated rapidly and many pickup and SUV owners dumped those vehicles for more fuel-efficient ones.
Beggs says he is "cautious" about the potential value retention of fuel-efficient vehicles. That's because the number of new vehicles entering that arena is growing faster than the demand for them, especially if gasoline is under $5 per gallon. The arrival of more high-mpg new cars in showrooms cuts the value of high-mpg used cars.
He adds that automakers are introducing a wave of fuel-efficient cars to meet stricter corporate average fuel economy regulations. "You can't blame the manufacturers," he says. "They have to do this to meet CAFE requirements."
You can reach Arlena Sawyers at asawyers@crain.com.
