Used car prices fall; new vehicle incentives impact used car demand

by Jeff Della Rosa (JDellaRosa@nwabj.com) 624 views 

Used vehicle prices declined in September after the prices were flat in July and rose in August, and the prices might continue to fall depending on the incentives and discounts that are being offered in the new car market.

In a recent conference call on the used vehicle market, economists Jonathan Smoke and Zo Rahim, both of Cox Automotive, explained price trends through September and provided insights into the market for the rest of 2019 and into 2020.

Wholesale prices in the market fell 1.04% in September, from August, Rahim said. As a result, the Manheim Used Vehicle Value Index fell to 139.9, which is flat from September 2018 and down from the record high. Used vehicle prices rise as a result of the inherent inflation of new vehicle prices, Rahim said.

Also, used vehicle prices change seasonally, such as during tax return season, when prices typically increase. When looking at price trends for three-year-old vehicles, which are the most popular ones sold at auction, prices generally start to decline in the fall and winter after the spring price bump when people start to receive their tax returns and demand for used vehicles rises. The prices were flat through most of the summer but have since started to decline. The decrease in September was larger than expected, Smoke said.

He explained incentives and low-interest rates being offered in the new car market have led to weakness in the used car market and could impact used car values through the remainder of 2019.

“That effectively becomes my biggest concern that could weigh on used vehicle values through the end of the year and even to start next year,” Smoke said.

The low-interest rates along with the incentives make a new vehicle an attractive option to buyers compared to a used vehicle, and this has impacted used vehicle demand, he said. The rise in incentives, however, is not expected to continue over the long-term. A possible tightening in new vehicle inventory could slow the incentive growth.

Used vehicle values declined in every vehicle segment, except for vans and luxury cars, in September, from the same month in 2018, he said. Electric car prices rose 14.8% in September, from the same month in 2018. Cars comprised 47% of used vehicle sales, while SUVs accounted for 36%, according to Manheim. Pickups and vans accounted for 12% and 5%, respectively.

Used vehicle sales are projected to fall to 39.2 million in 2019, from 39.4 million in 2018, according to Cox Automotive. The sales are projected to fall to 39 million vehicles in 2020. Retail sales of used vehicles, which represents car dealer sales, is expected to rise by 1.5% to 19.8 million in 2019, from 19.5 million in 2018. It’s expected to increase to 20 million in 2020.

In the first quarter of fiscal 2020, which ended July 31, vehicle sales for America’s Car-Mart Inc. were flat at 12,523 vehicles. In fiscal 2019, which ended April 30, the Bentonville-based buy here, pay here used car dealer sold 50,257 vehicles, up 4.1%, from the previous year.

The number of vehicles that are coming off lease is expected to rise 5.1% to 4.1 million vehicles in 2019, from 3.9 million vehicles in 2018, according to Cox Automotive. The number also is expected to be 4.1 million vehicles in 2020.

The average price of rental vehicles sold at auction fell 0.7% in September, from the same month in 2018. The price of the vehicles declined by 0.9% in September, from August. The mileage of rental vehicles sold at auction declined 2% to 46,943 miles in September, from August, Rahim said, noting that rental car conditions improved. The mileage of the vehicles increased 6% in September, from the same month in 2018.

U.S. automobile dealers see the existing market as negative, with the Cox Automotive Dealer Sentiment Index at 48 for the third quarter of 2019, according to Cox Automotive. The index fell from 49 in the second quarter. More dealers in the third quarter see the market as weak, compared to the number of dealers who see it as strong. Dealers remain positive about the next quarter but are less optimistic than they were in the second quarter.

 

Comments

comments