As summer wanes, used-vehicle values are unusually strong — a phenomenon experts attribute to increasing demand for used vehicles, growing dealer focus on that part of their businesses and concern over potential tariffs.
Analysts with the industry's major used-vehicle price tracking services all are calling out the unusual trend. Summer, especially the latter part of the season, is when used-vehicle prices typically dip in preparation for the summer sales push ending.
"It's been a crazy year for used-vehicle pricing," said Zohaib Rahim, Cox Automotive manager of economics and industry insights. The company's Manheim Used Vehicle Value Index ended July at its highest point ever, rising 1.5 percent over June and 5.1 percent vs. the year earlier, he said, and prices appear to be continuing that strength in August, too.
"That's not alarming, but it's very abnormal. We don't see this price trend this part of the year," Rahim said. "Used-vehicle prices typically peak in spring, so March and April, and they decline the rest of the year."
Multiple forces are converging to bring about the increases, experts said. Analysts from Black Book and KAR Auction Services Inc. also report higher prices than normal for the season.
Hallett: Possible tariffs a factor "Going into the year, our economist and folks we work closely with were saying we should expect a 3 to 5 percent shift [down] in pricing based on just the influx of the off-lease cars with those volumes increasing year over year," KAR CEO Jim Hallett told Automotive News. Instead, prices have "held up very, very strong."
KAR executives attributed the high prices in part to flat new-vehicle incentives that bolster used-vehicle values as new-car prices stay high.
!function(d, s) {var ip = d.createElement(s);ip.async = 1, s = d.getElementsByTagName(s)[0], ip.src = "//s.idio.co/ip.js", s.parentNode.insertBefore(ip, s)}(document, "script");$(function() { $idoWidget = $('#idio-article-recommendations-8'); $imageContainer = $idoWidget.prev().prev(); $imageEle = $imageContainer.children('img'); if ($imageEle && $imageEle.length > 0) { $imageContainer.insertAfter($idoWidget); }});Threatened tariffs on imported vehicles that could price some consumers out of the new-vehicle market is another factor, both Cox and KAR experts say.
"People are thinking about these tariffs and what could come out of that, and I think that's making used cars more valuable," Hallett said.
It has made some dealers want to increase used-vehicle inventory to beat the potential price spike that could follow any tariff going into place, Rahim said. A dealer survey by Cox-owned Kelley Blue Book supports that notion that some dealers are stocking up, he said.
That might be creating a pull-ahead effect, Cox Automotive senior economist Charlie Chesbrough said.
Limited supplies are another factor. Repossessions are down, Chesbrough said. Dealers are keeping more of the off-lease vehicles turned in at their stores rather than send them to auction.
"We sold so few cars in 2008, 2009, 2010, 2011 that now there's not a lot of inventory for the used market for these 7-, 8-, 9- and 10-year-old vehicles." Charlie Chesbrough, Cox Automotive senior economist And the Great Recession, which drastically cut the numbers of vehicles that went to market 10 years ago, is also rearing its head.
"We sold so few cars in 2008, 2009, 2010, 2011 that now there's not a lot of inventory for the used market for these 7-, 8-, 9- and 10-year-old vehicles," Chesbrough said. That's forcing a lot of dealers, particularly the independents, to buy newer vehicles. "Otherwise, they'll have no inventory."
Another key explanation: Franchised dealers are concentrating more on their used-vehicle businesses as new-vehicle sales flatten and squeeze new-car profits.
Moreland Auto Group in Colorado is a good example.
"Our stores that are firing on all cylinders have doubled their used-car inventory in the past 12 months," said Bennett Boothe, Moreland's director of Internet sales and marketing.
With three of the group's five stores selling domestic-brand vehicles, the tariffs aren't much of a concern at Moreland. The main motivation? More money can be made on the used side, he said.
Jay Feldman, CEO of Feldman Automotive Inc. with nine dealerships in Michigan and Ohio, also is growing his used business. He operates one standalone store and has branded that, plus the used-vehicle businesses at his Chevrolet, Kia and Hyundai stores in Michigan, under one name. He plans to open another standalone store in about a year.
"We've really focused on pre-owned," Feldman said. "It's about 40 percent of our business now, where two years ago, it was probably 25 percent."
But he's not too concerned about used-car prices increasing, he said.
If auction prices seem high on a certain type of vehicle, his buyers will purchase another type that day.
Jason Tamaroff, vice president of Jeffrey Automotive Group and Tamaroff Motors Inc. with six stores in Michigan, is working to boost used-vehicle sales, but he's also wary about stocking extra inventory given rising floorplanning costs. That expense has doubled this year so far for his groups, he said. A single vehicle costs the dealership about $40 a day in personnel, preparation and depreciation expenses.
"We're not buying cars to sit and hold," Tamaroff told Automotive News.
ATTENTION COMMENTERS: Automotive News has monitored a significant increase in the number of personal attacks and abusive comments on our site. We encourage our readers to voice their opinions and argue their points. We expect disagreement. We do not expect our readers to turn on each other. We will be aggressively deleting all comments that personally attack another poster, or an article author, even if the comment is otherwise a well-argued observation. If we see repeated behavior, we will ban the commenter. Please help us maintain a civil level of discourse.
No comments:
Post a Comment