GAINESVILLE, Ga. — Used car values did not slide as much as expected in 2013, despite strong new car sales, reports Black Book, which sees used values holding steady for much of this year.
Early last year experts predicted a marked decline in used values, which had become inflated during the tail end of the recession due to consumers holding onto their cars longer and reducing the supply of used cars on the market.
The rise in new car sales, and resulting trade-ins last year, should have led to a more significant drop in used car values in 2013. However, Black Book said that did not happen. While new car sales were stronger than expected, so too was used value retention, said Ricky Beggs, editorial director at Black Book, who tells lenders not to expect the same pattern much longer.
"Stronger than expected new car sales and stronger than expected used value retention normally don't support one another," Beggs said.
What buoyed used values last year, reports Black Book, is that many of the trades that rolled in with new car sales were older vehicles that dealers could not resell, and therefore did not have a dramatic effect on dealer used car inventories across the country.
Black Book predicts that used values will continue to be steady until Q4 2014, when used inventory levels will come back enough to begin to see a noticeable softening in prices — which will be more apparent in 2015.
Beggs has number of predictions for the new year that auto lenders will want to pay attention to as they map out strategies, including hot used pickup values and cold small cars and hybrid resales.
1. Continued Sizzling Pickup Market
The demand for pickups will stay hot in 2014, but used inventory levels will remain at moderate levels, keeping prices and retention values strong throughout the year.
2. Gas Price Impact On Smaller Cars
Gas prices are expected to follow a similar pattern to what the market saw in 2013, which means demand for smaller cars will continue to be light and result in larger depreciation levels in these models.
3. Hybrids Vs. Gas Sister Models
Hybrid value retention will continue to be weaker than gas sister models in 2014. Range anxiety is still an issue, the price of gas is still relatively moderate, and the price of entry on EV/hybrids is still at a premium compared with gas sister models.
4. 2014 Brings Need For More Accurate Residual Forecasting
Residual forecasting is no longer a strategy just for leasing. In 2014, lenders will use accurate residual forecasting for financed vehicles for their portfolios because wholesale inventory will be greater beginning in 2015. Lenders will need to use residual forecasting in order to determine the best strategy for portfolio growth.
5. Off-Lease Volume Will Grow
According to J.D. Power, off-lease volume (leased vehicles returned after the lease expires) was 1.3 million in 2012 and 1.7 million in 2013. The volume in 2014 will continue to grow, but a significant change will be seen in what happens with those off-lease vehicles.
Over the past two years a lot of this inventory was kept by the consumer, as they often purchased the car at the end of the lease. But in 2014, fewer consumer will purchase their cars post-lease. Lenders will have an opportunity here to partner with dealers on a remarketing strategy for off-lease inventory.
