"We expect some negatives going forward," said Eric Lyman, ALG director of residual value solutions, in a phone interview following an ALG Webinar last week.
Residual values have been on the upswing largely because the drop in new-car sales in 2008 and 2009 is generating a corresponding drop in the number of used vehicles three years later, in 2011 and 2012. The relative shortage of 3-year-old used cars will continue because 2010 sales were still low by historical standards and so are forecasts for 2011.
The shortage in 2008 has led to higher used-vehicle prices today. ALG says 2008 vehicles sold in 2011 are retaining on average about 55 percent of their original sticker price.
But for new vehicles that are leased today, ALG predicts an average 36-month residual of 50 percent.
"We don't think that the 55 percent we're seeing today is wholly sustainable in the long term," Lyman said.
According to ALG, of Santa Barbara, Calif., negative factors that work to lower predicted residual values include:
- Gasoline prices. The spike in gas prices in 2008 clobbered used-vehicle prices, especially for gas-guzzlers. High gas prices are back, and ALG worries about the future effect on off-lease vehicles in 2014 and beyond.
- Incentives. New-vehicle incentives typically lower resale values on used vehicles. "We expect that as manufacturers start to ramp up competition with the return of consumers into the new-vehicle market, there might be more competitive pressure to incentive spending to hit a sales target," Lyman said
- Fleet sales. Along those same lines, ALG is concerned that fleet sales could make a comeback, which also serves to depress resale values.
For now, ALG says it expects lower production due to the earthquake and tsunami in Japan to continue to support higher used-car values, but only for now. Lyman said, "We think that's got to be a short-term phenomenon."