Used-vehicle values have largely outperformed expectations this year, and here's why, according to Tom Kontos, chief economist for auction firm ADESA Analytical Services.
Auto lenders keep a close eye on trends in used-vehicle prices, since lenders have to resell repossessed vehicles as well as off-lease units. In addition, lenders that lease -- mostly the captive finance companies -- have to set residual values for leases that expire three years down the road.
Used-vehicle values have outperformed despite the fact that off-lease volume has nearly tripled since 2012. In the long run, used-vehicle prices are bound to turn downward more seriously, Kontos told Automotive News. In the meantime, he cited at least four factors supporting used-vehicle prices for now:
1. CPO sales. Certified pre-owned sales, backed by inspections, mandatory reconditioning and a factory warranty, have boosted used-vehicle prices, including the resale of units coming off leases, Kontos said. "Fundamentally, captives got into CPO as they got into leasing and realized, hey, they have a responsibility to do what they can to maintain used-car values."
2. Gradual rise. Even though it's popular to say, "off-lease tsunami," it's more of a gradually rising flood, Kontos said. "This recovery has never been that robust," he said. "It took a lot of years for the industry to get back to 17 million units" in annual new-vehicle sales.
3. Automaker discipline. Incentives are high in absolute terms, but they're not as high in historical terms as a percent of selling price, Kontos said. In addition, he said, in the face of flattening sales, manufacturers have avoided pumping extra vehicles to rental fleets. "Rental-car sales are down a couple hundred thousand units" this year, Kontos said. "That's helped."
4. Short-term factors. The average used vehicle sold for $10,977 in October, which was actually 4.2 percent higher than a year earlier, Kontos said. Short-term reasons probably influenced that, he said. Hurricane damage, especially in Texas and Florida, boosted replacement demand in October, he said, and recalls kept some vehicles off the market until they could be repaired. "I don't think that's unimportant," Kontos said.