GAINESVILLE, Ga.-Automotive industry analysts say a softening in auto auction sales may not be a sign the used car price bubble is beginning to burst, but it's a strong indication that the steady rise in used vehicle values has stopped.
Credit Union Journal previously reported (Jan. 2) that concerns exist in the industry and among analysts that used car values that steadily increased throughout and after the recession could begin to decline this year and next. Now that prediction appears to be coming to fruition.
Ricky Beggs, VP and managing editor of Black Book, said auto auctions over the last three to four weeks are leaving a lot more cars unsold at the close of the auction than earlier in the year-something he said FIs need to pay attention to. "It's nothing to be alarmed about yet, but it's a change in a trend within the used car market. We are seeing many more 'no sales' at the auction lanes."
Kevin Tynan, senior automotive analyst for Bloomberg Industries in Princeton, N.J, told Credit Union Journal he is aware of similar occurrences at auto auctions.
"My take is that there will be normalization of (used) wholesale prices and supply. The decrease in wholesale prices is a logical result of the new car market regaining some strength," said Tynan. "I expect even a short period of overcorrection as wholesale prices decline, recover, and stabilize. Consumer confidence is driving the recovery in the new car market and may push buyers, who have held onto their current vehicle a little longer, to opt for a new car given the easier credit and general optimism in the economy."
900,000 Cars Coming To Market
Beggs said during the first two months of the year 70% to 80% of used cars being run through the auction lanes were selling. That percentage has dropped closer to 50%, a sign that dealer buyers are not being as aggressive. "The question is, 'Why is the buyer not as aggressive?' We believe it's because there are more used vehicles coming on the market as a result of the increase in new car sales."
A recent report (Credit Union Journal, May 14) indicates that new cars sales this year are ahead of projections. Beggs noted that the seasonally adjusted annual selling rate for new cars is now at 14.3 million units, well above the 12.7 million units where the new car market ended last year.
"That's a million-and-a-half more new cars sold this year. For every new car sold, 60% of those sales bring a trade-in to the wholesale market. That's about 900,000 more used cars coming back on the market."
Beggs predicts new car sales will continue to rise, and accordingly, the value of used cars will decline. "We will see some adjustment in used pricing throughout the year, but I still believe we will have a very solid year for used cars. While this year we may not see a great depreciation in used values, we will not see any more increases in value, in my estimation," noted Beggs, who believes the real drop in used values will arrive in the middle of 2013.
What Lenders Should Know
What lenders must do now, insisted Beggs, to potentially reduce the number of borrowers turning in keys to their upside down used vehicles down the road, is to stop extending terms for used cars in an effort to keep the monthly payment down as used prices have risen.
"We have seen lenders loosen credit standards over the last two years, which is needed. But we have also seen many of them going longer on used terms and advancing more on the collateral."
Repo Remarketing, Citrus Heights, Calif., told Credit Union Journal it has yet to spot a decline in used sales in commercial and repo auction lanes. "Things are still strong, however, that is not to say used sales have not dropped on the dealer side," said CEO Lance Gartner, who explained Repo Remarketing is not involved in dealer auction lanes.
For info: Auto Sales Enter The Fast Lane, Auto Sales Enter The Fast Lane, www.reporemarketing.com,
