DETROIT -- Average used-vehicle prices will fall 4 to 5 percent over the next 12 months, ALG's Industry Report predicts.
In two to three years, average used-vehicle values will be 8 to 10 percent below current levels, the company, formerly known as Automotive Lease Guide, predicts.
ALG specializes in forecasting residual values for specific brands and nameplates. For instance, ALG might predict that a specific car will have a residual value of 45 percent of its new-car sticker price after three years. Finance institutions use that forecast to determine how much to charge for a three-year lease for that vehicle.
Falling residual values will challenge dealers because the dealers will have to ask consumers to make higher monthly lease payments on vehicles, said Eric Lyman, ALG's vice president of residual value solutions.
"The bottom line is your lease payment is determined by the difference between your transaction price and your lease-end residual value," he said.
A drop in used-vehicle prices has been expected, but the size of the decline is in question.
Used-vehicle prices have softened slightly since they peaked, depending on the nameplate, at record levels around May 2011. Prices rose on a severe shortage of used vehicles, reflecting weak vehicle sales and almost nonexistent leases in 2007-09, the 2009 cash-for-clunkers program that eliminated many older used cars, and a shortage of competing new cars after the earthquake and tsunami in Japan in March 2011.
Low used-car supplies are dictating how the used market behaves, Lyman said, and an increase in supplies won't come for another year or two.
"The supply right now is so low that is controlling everything in the used-market values," he said. "There just aren't enough vehicles out there relative to used-car demand."