Don't expect used-vehicle prices to soften notably any time soon.
For the third year in a row, used-vehicle prices rose significantly in 2011. Strong consumer demand for late-model used vehicles, coupled with a continued reduction in supply, promises to keep prices high this year, analysts say.
Jonathan Banks, senior director of editorial and data services at NADA Used Car Guide, says the used-vehicle supply is expected to drop 7 percent in 2012. The number of off-lease vehicles, a major source of used vehicles, particularly for certified used-vehicle programs, is projected to decline 22 percent this year. That's on top of a 17 percent decline in 2011.
Banks says the average age of vehicles in use is 11 years old, leading to pent-up demand for both new and used vehicles. Those supply and demand dynamics will keep used-vehicle prices high, he adds.
"We are confident it will be a really strong market in 2012, and we're predicting the prices will be higher than what we saw in 2011," Banks says.
But prices this spring -- typically the strongest time of year for used-car prices -- are not expected to exceed the record vehicle prices reached in spring 2011, says Tom Kontos, executive vice president of customer strategies and analytics at ADESA Auctions Inc.
That's because used-vehicle prices have gotten so high that they're beginning to compete with new-car prices.
Kontos says that when the average used-vehicle price gets close to 60 percent of the average new-vehicle price, consumers who straddle the fence between purchasing new or used vehicles will choose new ones.
In October -- the most recent month for which data are available -- the average used-vehicle price was 56 percent of the average new vehicle price, he says.
"That provides a limit to how much higher used prices can go," Kontos says.
Manheim reported that its Used Vehicle Value index registered its highest ever annual average in 2011, rising 4 percent to 124.9.