Analysts Expect 3.5-Percent Dip in Used Values During Coming Months

Here’s a number used-car managers might want to remember as they’re scouring the lanes for inventory: 3.5 percent. That figure seems to be the consensus among analysts from Kelley Blue Book and NADA Used Car Guide on how much used-vehicle values are going to drop during the coming months.

Alec Gutierrez, KBB’s senior market analyst of automotive insight, based his projection on how wholesale supply is improving at auction — albeit not significantly.

“As it stands today, supply has improved slightly but still remains tight,” Gutierrez acknowledged. “Trade-in volume has increased alongside new-vehicle sales, which is alleviating inventory shortages plaguing dealers.

“In most cases though, dealers are opting to retain trade-ins, keeping trade volume low in the auction lanes,” he added.

KBB also pointed out that off-lease volume is expected to remain tight until at least the first quarter of next year.

“But even then,” Gutierrez cautioned, “auctions may not see an increase in volume. In many cases, captive finance companies are selling their off-lease vehicles directly to franchised dealers, benefitting only those franchised dealers with access to upstream sales channels.”

With auction supply expected to remain tight through the third quarter of this year, Kelley Blue Book projects values to drop 3 to 4 percent on average.

“This decline will be less pronounced than the 5.6-percent decline that occurred during the third quarter of 2011, since values started their decline earlier this year,” Gutierrez surmised.

“Although values currently are down more than 4 percent year-over-year, we expect this gap to narrow as the pace of depreciation levels off in the months ahead,” he continued.

Similar Value Drop Expected by NADA UCG

For July, NADA UCG expects to see the downward pitch in demand experienced over the summer increase moderately in pace, and as a result, the 2.7-percent average drop in value for the month’s edition of the Official Used Car Guide was more severe than what has been seen so far this year.

“In addition, we expect that the quick descent of gasoline prices will remain a preservative for truck prices, but that the fall will continue to see compact and midsize car prices slip more than otherwise,” NADA UCG senior analyst Jonathan Banks projected.

Given these conditions, NADA UCG explained that compact and midsize car reductions of 3.7 percent and 4.4 percent, respectively, once again exceeded those of other segments, while the average downward adjustment of 1.8 percent on large pickups and SUVs was “comparatively mild,” according to Banks.

“Looking further afield, when the expiring Bush-era tax cuts and automatic reductions in government spending set to hit at the end of the year are placed alongside recent economic data, Europe’s persistent financial troubles, and slower growth in other global economies (particularly China), it’s likely that employment and consumer confidence will remain under pressure near-term,” Banks predicted.

“On balance, current indicators suggest caution — we are at least in an economic pause as firms and people avoid taking on new risk because of increased uncertainty,” Banks continued. “This does not indicate a collapse in used-vehicle prices, but it does advise adjusting fully for all effects historically suggested by seasonality and movements in underlying drivers.”

Considering these points, NADA UCG expects that used-price depreciation in August will be a more severe 3.5 percent or nearly a point greater than what is anticipated for this month.

Likewise, the firm’s used price forecast for the remainder of the year has been downgraded slightly.

On a mileage-, mix-, and seasonally-adjusted basis, NADA UCG expects that used prices for the year will grow by 2.3 percent relative to 2011, or 0.6 of a point less than last month’s forecast of 2.9 percent.

“Keeping in mind the current state of the economy and the clouds looming on the horizon, the potential for future cuts to NADA’s forecast appear greater than the likelihood of upward revisions,” Banks emphasized.