Off-lease surge will trim used-car values in '13
Toyota Financial Services' Mike Reid: 2013 off-lease volume is expected to grow, “but it's not anything off the charts.”
ORLANDO -- Wholesale used-car prices are expected to soften further next year but not fall precipitously, despite projections of more off-lease vehicles entering the market than in any of the previous three years.
Over 600,000 more 2- to 5-year-old end-of-lease vehicles will return to the market in 2013 than in 2012, data from Edmunds.com show. Many lenders severely cut back or stopped leasing during the worst of the recession in 2008-09, creating a dearth of off-lease vehicles in 2011-12.
But in 2013 the flow of off-lease vehicles back to the wholesale used-car market will rise notably. Consider the numbers from Mercedes-Benz Financial Services USA.
Mercedes-Benz Financial expects off-lease volume in 2013 to climb to a company record of 125,000 units, up from about 75,000 this year, said Joe Bedwell, the national remarketing manager. Bedwell said the company pays careful attention to reconditioning off-lease vehicles to keep residual values high, but there is no way around the impact of supply and demand.
"There's a certain number of buyers out there. And then all of a sudden, if you're doubling the amount of cars you're bringing back, you'd expect some downward pressure on prices," he said during the National Auto Auction Association conference here.
Ricky Beggs, managing editor of Black Book, said the industrywide drought of off-lease inventory will bottom out in December and then start to grow early next year. He predicts off-lease volume, coupled with more repossessed vehicles and more trade-ins from higher new-vehicle sales, will cause used-vehicle wholesale prices to soften noticeably next fall.
"We've just got more supply coming back in," he said.
"Overall values in 2012 will not be where they were in 2011, where we had segments increase year over year" across the board, with average used-car prices peaking at a record level in mid-2011, he said.
Today only one segment, compact pickups has continued to rise like that.
In 2013, he predicted, "It is not like an onslaught of used cars where volume is going to increase overnight. It's a gradual climb-up as we go through the year." As a result, "We'll still see a good spring market and a fairly stable summer market. What we could see is a softer fall market next year."
Toyota Financial Services, which went against the industry trend during the recession and did not cut back on leasing, expects off-lease volume in 2013 to grow, "but it's not anything off the charts," said Mike Reid, the company's national remarketing manager.
But Reid said that will change as a result of the "record number" of new-vehicle leases being written by Toyota Financial over the last few years. "We are expecting significant increases in 2014, 2015 and beyond," he said.
General Motors Financial Co. expects to contribute to the overall increase as well, though its numbers will be small, said Dan Heinrich, vice president of asset remarketing. It launched its first lease program in Ohio in December 2010, soon after being purchased by General Motors, then gradually spread it nationwide. It will have the first of its 2-year-old off-lease vehicles entering the market in December.
"Volume will start out pretty small and will continue to be small over the next year," Heinrich said. "At the end of 2013, we'll start to see the volume come in."
You can reach Arlena Sawyers at email@example.com.