Used-vehicle prices soften, demand strong
Harsh winter, recalls had been factors in tight supply
Used-vehicle prices are beginning to soften as more units come off lease, but they remain above last year's levels and aren't depreciating as fast as in pre-recession days.
Strong used prices help drive new-vehicle sales. But analysts say dealers also are benefiting from the slightly lower prices they are seeing at auction as demand for used vehicles in their stores remains strong.
Wholesale used-vehicle prices in June dipped and are expected to soften as the year wears on, according to used-vehicle pricing experts.
Data from Manheim and Black Book indicate that used-vehicle prices fell in June compared with May. Analysts from both companies expect an uptick in the number of off-lease vehicles through the rest of the year to put pressure on used-vehicle prices, but neither expects disruptive declines.
Strong retail demand is expected to offset some of that pressure, says Tom Webb, Manheim chief economist.
"The [off-lease] volumes are going to grow and at an increasing rate," said Webb during a conference call with analysts and reporters last week.
"You would expect that would have a downward pressure on prices. The offset is the tremendous strength of retail demand. Dealers are profiting on the units they are buying at auction at these prices."
Defying typical seasonal patterns, used-vehicle prices did not fall as expected in April.
A higher demand for rental cars by insurance companies whose customers crashed their vehicles during the bad weather last winter and by automakers whose customers' recalled vehicles were being repaired contributed to a lower volume of retired rental units sold by rental companies at auctions.
That helped tighten the overall used-vehicle supply and contributed to higher prices.
Ricky Beggs, editorial director at Black Book, expects an overall depreciation of 13.5 percent for 2- to 6-year-old used vehicles in the 2014 calendar year. He points out that is still more than the 12.8 percent depreciation in 2013 and way more than the 7.7 percent depreciation in 2011. But it is still below the typical pre-recession annual depreciation of 15 to 16 percent, he adds.
"Even if it gets to that 13.5 percent it's still going to be a good market for the year," he adds. "What we've got to be paying a little bit more attention to is calendar year 2015. I think that when we'll see the bigger change."
Wholesale prices of used vehicles in June fell 0.6 percent from the previous month's level but were 3.6 percent higher than in June 2013, according to the Manheim Used Vehicle Value Index released July 8.
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