Used car prices decline 8%, to continue falling in April

An index for used vehicles prices has fallen 8% since February 2016, and the decline was attributed to car manufacturers increasing incentives by 18%, a 6% rise in auction sales of vehicles and the delay in federal tax returns, according to a used car report.

“In a reversal of what typically occurs in February, wholesale prices of used vehicles up to 8 years old fell substantially (in February), dropping 1.6% compared to January,” according to NADA Used Car Guide.

A 1% increase was previously expected for the month, and the decline was “just the second time in the past 20 years prices fell in February.” The previous decrease came in February 2016, with a 0.2% decline. The NADA Used Car Guide’s seasonally adjusted used vehicle price index declined for the eighth consecutive month, falling 3.8% from January to 110.1.

“The drop was by far the worst recorded for any month since November 2008 as the result of a recession-related 5.6% tumble,” the NADA report showed.

America’s Car-Mart executives previously attributed a lower-than-expected rise in revenue in the quarter that ended Jan. 31 to the delays in income tax refunds. William “Hank” Henderson, CEO of the Bentonville-based buy here, pay here car dealership, said the used car market is seeing softness after “excess lending with significantly extended contract terms” and customers who have “been stuffed with offerings for several years now.” In the third quarter of fiscal 2017, Car-Mart’s revenue, from both sales and interest, rose 1% to $138.78 million.

Through Feb. 10, the total number of refunds issued was nearly 52% lower than in the same period in 2016, and the total amount distributed declined 69% to $29 billion, according to the Internal Revenue Service. As of Feb. 24, however, total number of refunds was down by 11%, while the total amount distributed was 10.5% less than in the same period in 2016.

“The sizable sum of disposable income sidelined in February logically played a role in pinching used vehicle demand over the month,” according to the NADA report. “February’s unusually soft showing makes pinpointing where used prices will go over the next few months a bit more challenging. However, given the slower than usual rollout of federal tax refunds, it’s assumed prices will be somewhat stronger in March and April than originally anticipated.” Prices of vehicles up to eight years old are expected to rise 2.5% in March but decline 1% in April.

In February, car manufacturers increased incentive spending for the 23rd consecutive month. On average, the spending rose to $3,594 per vehicle, compared to $3,043 in February 2016, according to Autodata. Through 2017, U.S. vehicle sales is expected to remain flat at 17.4 million vehicles, according to IHS Markit.
Car-Mart car sales declined 1.3% to 10,866 vehicles in the quarter that ended Jan. 31. The average sales price was nearly flat at $10,629. Through the first three quarters of fiscal 2017, vehicle sales rose 2.5% to 34,990, from 34,138. Average sales price rose 2.3% to $10,500, from $10,259.

According to the Manheim Index, wholesale used vehicle prices fell 0.2% in February, from January. But compared to the February 2016 index, vehicle prices are up 1.1%. While wholesale prices have only risen in one month over the past seven months, “stability remains the watchword for used vehicle values given that all of the declines were small. In the face of heavy new vehicle inventory and incentives, the stability of used vehicle values is a credit to the retail market that continues to provide dealers the ability to quickly retail wholesale acquisitions at reasonable grosses.”

In 2017, the inventory of used vehicles should be impacted as fewer new car buyers offer a trade-in, according to Edmunds Used Vehicle Market Report. New car buyers who trade in a vehicle is projected to decrease to 43%, and the number of trade-ins is expected to fall to 5.9 million vehicles — the first drop below 6 million since 2012. However, the number of near-new vehicles should rise because of a 10.6% increase in leasing in 2014.

Shares of Car-Mart (NASDAQ: CRMT) closed at $35.85, down 60 cents or 1.65%, on Monday (April 3). In the past 52 weeks, the stock has traded between $47.75 and $19.49.