A rising supply of used vehicles, particularly late-model cars and trucks coming off lease, already is hitting some companies in their pocket books.
That supply -- and the number of companies affected -- will continue to grow. Analysts predict the number of off-lease vehicles entering the used-vehicle market will rise steadily through at least 2020.
Although most analysts say the market can absorb the increased volume, softer used-car prices reduce the value of shoppers' trade-ins, which may make it more difficult for consumers to afford new vehicles' rising sticker prices. Some analysts, therefore, warn that higher used volumes, if accompanied by overproduction of new vehicles, could be a catalyst for increased sales incentives, which would hurt automakers' profits.
Lithia Motors Inc. already has felt the sting. The nation's eighth- largest dealership group told investors that its third-quarter profit margins narrowed on a dip in used-vehicle values.
Similarly, Avis Budget Group Inc. said falling used-vehicle prices pushed per-unit fleet costs in the third quarter higher than the company expected.
At Group 1 Automotive Inc., the nation's third-largest dealership group, used-vehicle retail unit sales in the U.S. rose 12 percent in the third quarter, but gross profits on those sales rose only half that: 6 percent.
"There was some pressure in the used-car business in the quarter," CEO Earl Hesterberg said. He cited ordinary seasonal declines in prices and the added pressure of more off-lease vehicles, plus some "pretty aggressive" marketing drives on new vehicles in August, which pulled used-car shoppers into new vehicles.
"When the market shifts like that and there's pressure on demand, we all try to keep our inventory turning," Hesterberg said. So Group 1 retailed some vehicles at lower prices rather than send them to auction.