Analysts: Used-car prices will soften
More vehicles expected back in market in 2013
Used-vehicle prices in the first quarter are predicted to range from "strong" to down 1 to 2 percent from the year-earlier quarter. That's the consensus of analysts, who also predict that about 240,000 to 400,000 more off-lease vehicles will re-enter the market in 2013 than in 2012.
Those additional off-lease units, coupled with trade-ins from increased new-vehicle sales, will increase the number of used cars and trucks industrywide, putting downward pressure on used-vehicle prices.
As 2013 progresses, barring unforeseen natural disasters and political influences such as a budget stalemate in Washington, used-vehicle prices are expected to mirror more closely the traditional seasonal patterns that were seen before the recession, rather than keeping to the high levels of the past few years.
"In the first quarter we expect to see prices down 1 to 2 percent on a year-over-year basis," says Alec Gutierrez, an analyst with Kelley Blue Book, who says the number of off-lease vehicles re-entering the market in 2013 could reach 400,000 units.
The softening in prices "could be more pronounced as we head into the second quarter, when we could see prices down 3 to 4 percent," he said. "Not because we expect a lot of downward pressure on prices but because prices were abnormally high in 2012. We're returning to a more normal seasonal pattern and we're comparing to an oddball couple of years impacted by high fuel prices."
The reduction in the number of off-lease vehicles over the past two years is tied to an industrywide pullback in leasing that accompanied the decline in new-vehicle sales in 2008-09.
Then in 2011, political turmoil in the Mideast and an earthquake and tsunami in Japan led to spiking gasoline prices and a demand for fuel-efficient used cars, a scenario that helped lift average used-vehicle prices overall.
Leasing began to bounce back in December 2009 and gained momentum in 2010, so the market is just starting to see off-lease vehicles show up in the used-car market now. With many of those being 36-month leases, NADA Used Car Guide expects at least 240,000 more off-lease vehicles to return to the market in 2013 than in 2012.
Larry Dixon, an analyst at NADA Guide, says he expects prices to be "mildly softer" next year but does not expect to see significant deterioration in used-vehicle prices, either.
Dixon says though the number of off-lease vehicles re-entering the market will increase in 2013, the average age of the overall used-vehicle population will rise. That's because vehicles owned by nonlease consumers have driven the average overall vehicle population age to 11 years old.
As those older vehicles are traded in, the share of the overall used-vehicle population 8 years old or younger will decline. That tight supply of late-model used cars and trucks, coupled with an improving housing market and easier access to credit, will help buoy used-vehicle prices, too, he says.
"Market fundamentals are simply too favorable" for prices to fall significantly, says Dixon, whose data indicate that used-vehicles prices in the first quarter will be down 1 to 1.5 percent compared with the first quarter of 2012.
Ricky Beggs, managing editor of Black Book, predicts that prices of used vehicles will remain "strong" through next spring and then fall in May and June to a point where many off-lease vehicles will have no equity in their prices when they re-enter the market.
"It won't be overnight that the pipeline [of off-lease vehicles] opens up, but it will be a steady increase throughout 2013," Beggs says.
"Supply is getting closer to demand levels. The extra value we'v e seen in the used market over the last couple of years is not going to continue."
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