Increased new-car incentives and a glut of off-lease vehicles hitting the market take a toll on pre-owned-vehicle operations.
LAS VEGAS – A record 3.1 million off-lease vehicles will flood the used-car market this year. Lots of them are cars that aren’t in demand in the CUV-crazy U.S. And automakers have been jacking up new-car incentives.
Those factors combine to make 2016 a down year for wholesale used-car prices, following a five-year streak marked by strong prices, hot demand and relatively lean supplies.
“Last year was another phenomenal year for used cars, with prices up 18% over pre-recession years,” says Jonathan Banks, a used-car auto analyst for the National Automobile Dealers Assn.
This year will be different though, with an expected 5%-6% drop in pre-owned vehicle prices, Banks predicts at a press conference during the 2016 NADA convention here.
Off-lease vehicles descending on the used-car market this year carry an 800,000-unit increase over 2015.
“Most of that volume will be dominated by compact and midsize cars,” he says. Those vehicle segments currently are among the softest in the industry.
Late-model used-car supply is expected to hit the highest level since 2008, and represent the biggest drag on vehicle prices, Banks says.
But new-car incentives will affect matters too. Automakers are expected to lay those on thicker than before to bolster new-vehicle sales that WardsAuto forecasts will reach 17.8 million units this year.
“Increasing new-vehicle incentives will put downward pressure on used-car prices,” Banks says. “Incentives have been creeping up since 2011.” Five years ago, industry incentives were 8.3% of MSRP. Now they are 9.6%, which Banks describes as “really high.”
Used-car prices could decrease even more than he currently predicts if automakers really step up new-car incentives such as rebates and sweet lease deals. “Incentives are the wild card,” he says.
He adds: “Leasing is fantastic. You get people returning to dealerships more often because of that 3-year churn. But you don’t want to go back to the 1990s when leasing was a drag on the used-car market.”
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Author: Josh Vajda
Josh Vajda is Director of Inside Sales for AutoUSA. Previously he held senior management positions with AutoNation, where he led the auto retailer’s efforts in training and development, customer satisfaction and sales operations. Josh holds a B.S. in Business Management and Marketing from Cornell University, and is passionate about community involvement. He is a member of Leadership Broward and has held board and advisory positions with the Make-a-Wish Foundation.