New-Model-Year Kickoff May Bruise Used-Car Prices

Beefed-up used-car values of late are expected to lose a little muscle, as the start of the ’11 model year brings new cars to the center of the ring.

Expect a slight depreciation in used-car values as the auto industry heads into the new-model year, says Jonathan Banks, executive automotive analyst with the NADA Used Car Guide.

“Historically, this is when the used market begins its steep seasonal decline, which lasts for the remainder of the year,” he says. “However, 2010 will be slightly different in that the depreciation will be flatter than traditional trends due, in some part, to tighter inventory on the new-vehicle side.”

Those lean inventories this year have allowed auto makers to avoid aggressive sell-down incentives on ’10 models. Still, used-car demand and prices remain strong in general.

With a tight used-vehicle supply, especially on lease returns, the market has seen prices rise for high-quality late model vehicles. Many of those in-demand models are sold through auto makers’ certified pre-owned programs.

Dealers are scrambling for high-quality used cars, “and prices are validating this,” Banks says.

Particular pricing strength continues in two diverse segments, compact cars and fullsize pickups, according to Manheim Consulting.

The rise in wholesale pricing for compact cars also comes with an increase in the volume sold at auction.

Used-pickup volumes have declined but that segment’s prices remain one of the highest, with a 5.1% year-ago increase last month, according to Manheim’s Used-Vehicle Value Index.

Economic outlook improving modestly, Manheim Chief Economist Tom Webb says.

At auction, truck-based vehicles outperformed cars, “with prices on large SUVs and midsize CUVs showing positive growth,” Banks says.

He credits stable fuel prices for strong truck values “while consumers in both the new and used market are losing interest in vehicles that are primarily purchased for fuel economy, such as Smart cars and hybrids.”

Any weakness in wholesale pricing centers on luxury vehicles and sports cars, Manheim says.

Off-rental units keep commanding strong prices. Wholesale pricing for rental risk units was up year-over-year.

Average mileage at time of sale for rental units is up to about 36,800 miles (58,880 km), but down from the year-ago level of 39,160 miles (62,656 km) when rental agencies kept their fleet vehicles in service longer because of the tough economy.

Wholesale pricing for rental repurchase units continued at record highs based on low volumes and a richer mix of models being sold, Manheim says. Prices are strong for pickups and fullsize vans coming out of fleet service.

Pricing strength remains broad-based. While an analysis of used-vehicle values by price tier showed a more even performance across the various categories, the strongest segment remained vehicles in the $5,000 to $8,000 range, says Manheim Chief Economist Tom Webb.

“Interestingly, this price tier also had the biggest increase in volume as it includes many dealer-consigned units,” he says.

The economic outlook is improving modestly, Webb says. After a month of very bleak economic statistics, reports in August and September show more promise.

He points to consumer confidence increasing, retail-sales activities picking up and unemployment numbers alleviating.

“It appears that the summer stall will not turn into a fall retreat,” he says.

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