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April 18, 2016
www.usedcarnews.com
Growing Supply Pushes Down Resale Values
Photo by Ted Craig KEEP MOVING FORWARD: Dealers enjoy a racing challenge at the ADESA booth at the National Automobile Dealers Association convention in Las Vegas. Auction executives hope the dealers remain this competitive in the lanes as the supply of off-lease vehicles continues to increase. By Ted Craig
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The long-anticipated decline in wholesale values is gaining steam. The Manheim Used Vehicle Value Index declined to 122.5 in March. The Index has declined every month this year. The pace of used-vehicle value decline is expected to accelerate. NADA Used Car Guide expects a price decline of 5 percent by the end of the year. The main driver of this decline is supply. Demand remains strong, with 3.6 million used–car sales in March, according to Edmunds.com.
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The sheer number of used vehicles coming into the market is greater than the demand, however. Jonathan Banks, NADA Used Car Guide’s senior automotive analyst, said 800,000 more units are coming off-lease this year than last, driving the total number to over 3 million. That increase accounts for more than 80 percent of the decline in wholesale prices, Banks said. The good news is the industry is better equipped to handle the increase in units than it was the last time large volumes came off-lease in the early 2000s. “If we had the remarketing pro-
cesses of the past, I’d be worried,� said Manheim chief economist Tom Webb. The manufacturers are taking steps on the retail side in an attempt to prop up residuals, such as General Motor’s Factory Pre-Owned Collection and Toyota’s certified pre-owned leasing program. “There’s an acknowledgment in the industry that a lot of vehicles are coming off-lease,� said Steven Szakaly, chief economist for the National Automobile Dealers Association. Tom Kontos, ADESA’s executive vice president of industry analy-
sis, said values would have fallen earlier if certified pre-owned programs weren’t there to absorb some of the volume. But Szakaly cautioned that “CPO is not a savior.� All the manufacturers can do is lessen the blow. The question now becomes how fast will prices decline and for how long. Speaking at the American Financial Services Association vehicle conference, John Hyatt, head of the indirect lending group for U.S. Bank, said he expects the slide to continue for years.
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